good housekeeping from homegates.sfgate.com
One advantage for a homeowner with a mortgage is that mortgage payments are made for the month prior. In other words, your Jan. 1 mortgage payment actually covers December, meaning there's a potential tax advantage. Typically, homeowners receive their mortgage payment statements several weeks before those payments are due. By making your Jan. 1 mortgage payment early -- which is for the previous December -- you can deduct its mortgage interest portion.
Deducting Mortgage Interest
You must itemize your tax return to deduct any mortgage interest. Deducting mortgage interest from an extra payment is as simple as paying your December mortgage bill -- it's for the previous November -- first. Once you've paid your December mortgage bill, pay your January bill prior to the first of that month. Making an extra mortgage payment prior to Jan. 1 is a relatively simple way to obtain 13 months worth of mortgage interest deductions.
Early Payment Rationale
By making your January mortgage payment in December, your lender is able to carry that payment on its prior year books. With exceptions, mortgage interest payments made in a current tax year -- even if made the day before the new year -- are usually deductible. The Internal Revenue Service looks at mortgage interest deductions carefully, but a single extra end-of-year payment normally is allowed. Deducting an extra mortgage payment's interest is made easier with an IRS Form 1098, too.
IRS Form 1098
IRS Form 1098 shows interest on debt you're paying to a lender. If you've paid more than $600 in interest on a debt you legally owe, you'll receive Form 1098 from that lender. Although you still can deduct your extra mortgage payment's interest portion without a 1098 in hand, a 1098 makes things easier. When you itemize deductions, such as mortgage interest, you do so using Form 1040, Schedule A.
Reducing Interest Deductions
Deducting extra mortgage interest in one tax year might reduce your deduction amount for the next year. For example, by making your January mortgage payment in December, you'd remove January's mortgage interest deduction for the next year. Making an early mortgage payment in one tax year will give you 13 months worth of interest deductions. However, the extra month's mortgage interest deduction you take one year could reduce your mortgage interest deductions by one month the following year.
Sunday, December 11, 2016
Colorado's Most Expensive Home
from Colorado.OurCommunityNow.com
Bill Koch’s $100 Million Aspen mansion has been given the title of Colorado’s most expensive home. Come take a peek at how the other half lives.
You know your house is more than just a home when it’s given the title “compound.” Bill Koch recently listed his mountain compound, Elk Mountain Lodge Properties, near Aspen, for $100 million. Making the estate Colorado’s most expensive home.
What exactly makes this Aspen compound worth $100 million? With the laundry list of amenities and overall amazingness, it’s not hard to see. According to Zillow, the property stretches 82.6 acres, and includes a log-and-stone main lodge, as well as many single family homes and historic cabins. The resounding 43,229 square feet home(s) include amazing features:
•28 bedrooms
•25 bathrooms
•Five half-baths
•An entertainment hall
•A fitness room
•An indoor basketball court
•Multiple spas
•A four-car heated garage
•A carriage house
•A walk-in, temperature and humidity controlled wine room
•An mind blowing mountain view
Bill Koch himself is an avid art, wine, and maritime memorabilia collector. While the price of this huge ski retreat does include all of the furnishings, you’d be on your own to add in the artwork, because his collectables are not included.
Check out Colorado’s most expensive home for yourself and cry over your ramen and Comcast bills.
Bill Koch’s $100 Million Aspen mansion has been given the title of Colorado’s most expensive home. Come take a peek at how the other half lives.
You know your house is more than just a home when it’s given the title “compound.” Bill Koch recently listed his mountain compound, Elk Mountain Lodge Properties, near Aspen, for $100 million. Making the estate Colorado’s most expensive home.
What exactly makes this Aspen compound worth $100 million? With the laundry list of amenities and overall amazingness, it’s not hard to see. According to Zillow, the property stretches 82.6 acres, and includes a log-and-stone main lodge, as well as many single family homes and historic cabins. The resounding 43,229 square feet home(s) include amazing features:
•28 bedrooms
•25 bathrooms
•Five half-baths
•An entertainment hall
•A fitness room
•An indoor basketball court
•Multiple spas
•A four-car heated garage
•A carriage house
•A walk-in, temperature and humidity controlled wine room
•An mind blowing mountain view
Bill Koch himself is an avid art, wine, and maritime memorabilia collector. While the price of this huge ski retreat does include all of the furnishings, you’d be on your own to add in the artwork, because his collectables are not included.
Check out Colorado’s most expensive home for yourself and cry over your ramen and Comcast bills.
18 Tips For Living In Your Home While It’s For Sale
good advice from lightersideofrealestate.com
It’s one of the largest and most expensive assets most of us will ever own. It’s where we lay our head down at night, the place we make memories and call home. Selling it can be one of the most overwhelming and stressful experiences you may ever go through. So here are 18 tips for living in your home while it’s for sale to help you through the process:
1.Yes, make the beds every day!
2.If you smoke, don’t do it in the house! And if you’ve smoked in the house it would pay to have a restoration company come try to treat it or consider having it completely painted to rid the smell.
3.Dishes up. :)
4.Keep closets and storage areas organized, the larger they appear the better!
5.Keep it smelling nice. If you cook something strange, air it out!
6.Keep the temperature comfortable and season appropriate.
7.Fresh flowers inside and out are always a nice touch.
8.Keep your refrigerator clean and organized in case they look.
9.Keep your trash cans emptied.
10.Keep the floors vacuumed.
11.Keep the yard tidy.
12.Leave whenever possible and take pets with you; it makes the buyers feel more at ease. You want them to take the time to appreciate your home, right?
13.Don’t talk to the other agent or buyer directly more than you have to. You hired your agent for a reason, so let them do their job.
14.Be prepared for lights to be left on, doors left unlocked, and heaven knows what else I’ve had happen over the years. It’s not often but it’s also not the exception to the rule unfortunately these things happen sometimes.
15.Wait patiently for feedback from your agent. Sometimes it takes a few days to hear back from the other agent and the buyer.
16.Be as patient as you can throughout the process and try not to blame your Realtor if it doesn’t sell right away. If you chose the right agent, they have no reason in the world not to do everything they can to get your home sold as soon as possible and for that matter, for as much money as possible. They don’t get paid unless and until you get paid.
17.Remove any really valuable items. Consider taking them to a safety deposit box or storage unit just to be safe.
18.Breathe. When it’s meant to sell, that right buyer will come along. :)
It’s one of the largest and most expensive assets most of us will ever own. It’s where we lay our head down at night, the place we make memories and call home. Selling it can be one of the most overwhelming and stressful experiences you may ever go through. So here are 18 tips for living in your home while it’s for sale to help you through the process:
1.Yes, make the beds every day!
2.If you smoke, don’t do it in the house! And if you’ve smoked in the house it would pay to have a restoration company come try to treat it or consider having it completely painted to rid the smell.
3.Dishes up. :)
4.Keep closets and storage areas organized, the larger they appear the better!
5.Keep it smelling nice. If you cook something strange, air it out!
6.Keep the temperature comfortable and season appropriate.
7.Fresh flowers inside and out are always a nice touch.
8.Keep your refrigerator clean and organized in case they look.
9.Keep your trash cans emptied.
10.Keep the floors vacuumed.
11.Keep the yard tidy.
12.Leave whenever possible and take pets with you; it makes the buyers feel more at ease. You want them to take the time to appreciate your home, right?
13.Don’t talk to the other agent or buyer directly more than you have to. You hired your agent for a reason, so let them do their job.
14.Be prepared for lights to be left on, doors left unlocked, and heaven knows what else I’ve had happen over the years. It’s not often but it’s also not the exception to the rule unfortunately these things happen sometimes.
15.Wait patiently for feedback from your agent. Sometimes it takes a few days to hear back from the other agent and the buyer.
16.Be as patient as you can throughout the process and try not to blame your Realtor if it doesn’t sell right away. If you chose the right agent, they have no reason in the world not to do everything they can to get your home sold as soon as possible and for that matter, for as much money as possible. They don’t get paid unless and until you get paid.
17.Remove any really valuable items. Consider taking them to a safety deposit box or storage unit just to be safe.
18.Breathe. When it’s meant to sell, that right buyer will come along. :)
Denver is nation's No. 2 market for rising housing prices
interesting article from bizjournals.com
Home prices are rising with impressive vigor across much of the South — especially Texas — as well as in pockets of the West and the industrial Northeast.
Other parts of the country are having a tougher time. Home values remain depressed today in several California, Florida and Nevada cities that were hit especially hard by the Great Recession of 2007-2009, according to an American City Business Journals (ACBJ) analysis of new federal data.
The current national pacesetter is Texas’ capital city, Austin, where the value of a typical home has soared by 64.9 percent since 2006.
Second place belongs to Denver, whose real-estate values have increased by an average of 45.5 percent in 10 years. Rounding out the top five is a trio of Texas metropolitan regions: Houston (up 45.2 percent), Dallas (43.6 percent) and San Antonio (35.9 percent). Scroll to the bottom of this page for a database with the latest numbers for 124 major markets.
At the opposite end of the national scale are seven metros where home prices are at least 25 percent lower than they were in 2006. The sharpest decline has occurred in Las Vegas, which is down 31.8 percent for the decade.
ACBJ, the parent company of Business First, compared local house prices in the third quarters of 2006 and 2016, using data compiled by the Federal Housing Finance Agency (FHFA). The 10-year span encompasses the final run-up of home values prior to the Great Recession, followed by the downturn itself and the subsequent economic recovery.
FHFA converts each market’s housing prices to a quarterly all-transactions index, which is pegged to a 1995 value of 100 points. Any rise in the index corresponds to an overall increase in local prices. Any drop indicates that values are declining.
ACBJ calculated the 10-year changes for all 124 metropolitan areas and divisions whose current populations are larger than 500,000. Austin’s index, for example, shot up from 178.24 points in the third quarter of 2006 to 293.88 points in the corresponding period this year, yielding a gain of 64.9 percent in the value of a typical home.
Home prices are rising with impressive vigor across much of the South — especially Texas — as well as in pockets of the West and the industrial Northeast.
Other parts of the country are having a tougher time. Home values remain depressed today in several California, Florida and Nevada cities that were hit especially hard by the Great Recession of 2007-2009, according to an American City Business Journals (ACBJ) analysis of new federal data.
The current national pacesetter is Texas’ capital city, Austin, where the value of a typical home has soared by 64.9 percent since 2006.
Second place belongs to Denver, whose real-estate values have increased by an average of 45.5 percent in 10 years. Rounding out the top five is a trio of Texas metropolitan regions: Houston (up 45.2 percent), Dallas (43.6 percent) and San Antonio (35.9 percent). Scroll to the bottom of this page for a database with the latest numbers for 124 major markets.
At the opposite end of the national scale are seven metros where home prices are at least 25 percent lower than they were in 2006. The sharpest decline has occurred in Las Vegas, which is down 31.8 percent for the decade.
ACBJ, the parent company of Business First, compared local house prices in the third quarters of 2006 and 2016, using data compiled by the Federal Housing Finance Agency (FHFA). The 10-year span encompasses the final run-up of home values prior to the Great Recession, followed by the downturn itself and the subsequent economic recovery.
FHFA converts each market’s housing prices to a quarterly all-transactions index, which is pegged to a 1995 value of 100 points. Any rise in the index corresponds to an overall increase in local prices. Any drop indicates that values are declining.
ACBJ calculated the 10-year changes for all 124 metropolitan areas and divisions whose current populations are larger than 500,000. Austin’s index, for example, shot up from 178.24 points in the third quarter of 2006 to 293.88 points in the corresponding period this year, yielding a gain of 64.9 percent in the value of a typical home.
Seller's housing market could flip to buyers soon
considerations from consumeraffairs.com
Seller's housing market could flip to buyers soon
As inventory builds and rates rise, sellers will have less leverage
Over the last couple of years the U.S. housing market has transformed into something of a seller's market, especially in fast growing cities favored by Millennials.
Declining inventory of homes for sale has increased competition for the remaining homes on the market, driving up prices. So it's been good for sellers but not so good if you are trying to buy a home.
Real estate marketplace Zillow has found fewer than half of buyers successfully close on the first home they make an offer on.
But Zillow's market experts now predict the situation is about to change, but it won't do so overnight. However, with home values expected to slow to 3% next year, buyers could be back in the driver's seat by 2018 or 2019.
"Sellers in the current housing landscape often have the luxury of listing their home 'as-is' without fixing it up or with only minimal window-dressing since demand for homes has been high and inventory low,” said Zillow Chief Economist Dr. Svenja Gudell. “It's common for sellers to receive multiple bids, and in the hottest markets, sell for over asking price, but these conditions will change in the future. As the number of homes for sale increases and home value appreciation slows, we expect the market to meaningfully swing in favor of buyers within the next two to three years."
Hot markets the last to flip
Of course, that might not be the case everywhere. Red hot housing markets will be the last to flip to a buyer's market. Zillow reports Portland, Seattle, and Dallas had the largest increase in appreciation among the 35 largest metros across the country in October.
The value of homes in Portland rose almost 15% to a median value of $349,500. In Dallas and Seattle, the price of typical homes increased just over 12% since October 2015. Consumers hoping to buy there will likely face stiff competition for some time.
New home construction is key
Housing markets that see the greatest increase in new home construction will likely be among the first to flip to a buyer's market, since new housing developments are the fastest way to increase housing inventory. As things now stand, new home construction remains about half of what it was during the housing bubble, but the National Association of Home Builders (NAHB) says the trend is moving higher.
“Builders are adding to inventory based on consistent gains in sales, solid builder confidence and ongoing job and economic growth,” said NAHB Chief Economist Robert Dietz.
According to the association's October numbers, the inventory of new homes for sale in the U.S. was 246,000, a 5.2-month supply at the current sales pace. The median sales price of new houses sold was $304,500.
Seller's housing market could flip to buyers soon
As inventory builds and rates rise, sellers will have less leverage
Over the last couple of years the U.S. housing market has transformed into something of a seller's market, especially in fast growing cities favored by Millennials.
Declining inventory of homes for sale has increased competition for the remaining homes on the market, driving up prices. So it's been good for sellers but not so good if you are trying to buy a home.
Real estate marketplace Zillow has found fewer than half of buyers successfully close on the first home they make an offer on.
But Zillow's market experts now predict the situation is about to change, but it won't do so overnight. However, with home values expected to slow to 3% next year, buyers could be back in the driver's seat by 2018 or 2019.
"Sellers in the current housing landscape often have the luxury of listing their home 'as-is' without fixing it up or with only minimal window-dressing since demand for homes has been high and inventory low,” said Zillow Chief Economist Dr. Svenja Gudell. “It's common for sellers to receive multiple bids, and in the hottest markets, sell for over asking price, but these conditions will change in the future. As the number of homes for sale increases and home value appreciation slows, we expect the market to meaningfully swing in favor of buyers within the next two to three years."
Hot markets the last to flip
Of course, that might not be the case everywhere. Red hot housing markets will be the last to flip to a buyer's market. Zillow reports Portland, Seattle, and Dallas had the largest increase in appreciation among the 35 largest metros across the country in October.
The value of homes in Portland rose almost 15% to a median value of $349,500. In Dallas and Seattle, the price of typical homes increased just over 12% since October 2015. Consumers hoping to buy there will likely face stiff competition for some time.
New home construction is key
Housing markets that see the greatest increase in new home construction will likely be among the first to flip to a buyer's market, since new housing developments are the fastest way to increase housing inventory. As things now stand, new home construction remains about half of what it was during the housing bubble, but the National Association of Home Builders (NAHB) says the trend is moving higher.
“Builders are adding to inventory based on consistent gains in sales, solid builder confidence and ongoing job and economic growth,” said NAHB Chief Economist Robert Dietz.
According to the association's October numbers, the inventory of new homes for sale in the U.S. was 246,000, a 5.2-month supply at the current sales pace. The median sales price of new houses sold was $304,500.
8 experts predict what the 2017 housing market has in store
interesting insight and excerpt from inman.com
8 experts predict what the 2017 housing market has in store
What will happen to mortgage rates, affordability, inventory and more
Key Takeaways
-Mortgage rates are likely to continue to increase throughout 2017.
-There will not be any easing in inventory, and affordability will still be a challenge in big markets.
-The potential is there for a large number of first-time buyers to enter the buying market, but they will face new challenges.
It’s been one unprecedented 2016, between the Brexit vote, the continued persistence of low mortgage interest rates and an election that seemed to temporarily throw markets for a loop.
What will the 12 months encompassing 2017 hold in store for housing?
Inman asked eight different experts to give their take:
Steve Cook, editor of Real Estate Economy Watch
Doug Duncan, senior vice president and chief economist at Fannie Mae
Mark Fleming, chief economist at First American
Matthew Gardner, chief economist at Windermere
Svenja Gudell, chief economist at Zillow
Ralph McLaughlin, chief economist at Trulia
Rodney Ramcharan, director of research at University of Southern California’s Lusk for Real Estate
Jonathan Smoke, chief economist at realtor.com
Here’s what they told us.
Mortgage rates
We’ve been spoiled with historically low interest rates, which haven’t risen despite threats to do just that over the past few years. No more. “The kind of rates we were getting earlier this year, down to 3.5 percent — those days are over,” said Cook.
Where will they go?
“We will likely still see volatility in mortgage rates over the next two, three, four months as [President-elect Donald] Trump unveils cabinet members and specific policies he wants,” said McLaughlin.
And the Federal Reserve is due to hike rates, too, which often puts pressure on mortgage rates one way or another. “I think in December we’ll see the Fed raising rates and we’ll see more Fed hikes in 2017, and with that, I wouldn’t be surprised if the 30-year fixed mortgage rate hits 4.75 percent,” said Gudell.
“I don’t believe we’ll see any pullback until after the inauguration, but even the best-case scenario suggests that the historically low rates that have been in place for the last few years are firmly in the rear-view mirror,” said Gardner. “My forecast is for the 30-year fixed rate to rise above 4.5 percent by year’s end, and worst case scenario, knock on the door of 5 percent.”
What does it mean?
Whether or not the rate increase will affect homebuyers (and especially first-time homebuyers) remains to be seen, but Duncan believes it’s at least partially contingent on income growth.
“If income growth picks up, then the rise in interest rates will affect refinancing, but not the home purchase activity. If incomes start to grow more strongly, it probably won’t affect buying as much as refinancing,” he said.
Rodney Ramcharan
“Just looking at the pricing data in terms of interest rates, the spike in interest rates should definitely slow things down,” said Ramcharan.
Fleming said that if mortgage rates get closer to 5 percent by the end of 2017, he would expect home sales to decline by about 4 percent from First American’s original projection — or by about 200,000 sales.
At what point would rising mortgage rates start to significantly dampen buyer demand?
“When I’ve looked at this topic historically in the past, what you tended to see was an absolute level that the market reacted to, and in years past that absolute level was closer to 6.5 and 7 percent,” said Smoke.
“But there are plenty of people who believe that because we’ve had a decade of historically low rates that the new threshold for that might be in the mid 5’s or even as low as 5 percent. So if we see them jump more than we’re anticipating, getting into the 5s, then we start to run into that issue.”
However, Smoke thinks that in the meantime, there’s a lot that buyers can do to mitigate the effects of rising rates, including looking for lower-priced homes, putting more money down or changing term lengths on a mortgage’s fixed-rate component.
“If Trump goes ahead with his infrastructure plan, which is probably a smart thing to do and a no-brainer as far as Congress is concerned, it will stimulate the economy and probably increase pressure on rates,” added Cook.
Inventory
Housing inventory — or the lack thereof — was a big deal in 2016, and it will continue to be a problem next year, experts believe.
“Historically, you’d want to be much closer to a million homes built or sold, and we’re roughly at half of that, so I don’t think builders are going to have an easy time magically ramping up,” said Gudell.
Inventory will likely fluctuate by market and price point, too. “For people at high ends and expensive properties you may very well see a surge, and the expectation is that tax cuts will come,” said Ramcharan. “Prior to Trump being President-elect, there was a slowdown at the top end.”
How mortgage rates will influence inventory
Because most housing inventory comes from the existing market (as opposed to new construction), what potential sellers decide do in 2017 will have an impact on the market as a whole — and rising mortgage rates might not be great for sales.
“We’ve had effectively a 30-year tailwind run of declining mortgage rates,” said Fleming. “At this point in time, maybe they go up or down a little bit, but the long-term trend over the past 30 years has been lower and lower and lower mortgage rates.” Consequently, existing homeowners with low mortgage interest rates might not be able to afford to move into a bigger house if it also comes with a higher rate. “How do we address the fact that the existing homeowner, the largest single source of housing supply, has a built-in financial disincentive to make that supply move?” asked Fleming. “You’re making that decision to supply as a function of what you can afford to buy, but all else held equal, because you lose that low rate and have to get a new mortgage at a higher rate, you might not be able to buy your own home back from yourself without an increased monthly payment.”
Where’s the entry-level housing?
“The thing that’s missing is entry-level housing available for sale, but also, all of the apartment-building that is going on is all class A properties, which is the most expensive — no one is building class C properties,” said Duncan.
Sellers unwilling to budge
“Household psychology has affected people; they’re willing to take less risk than they were in the past,” said Duncan. “You can see that in the remodeling data. People are staying in place and remodeling their existing homes with a higher probability than in the past.” “The median tenure in homes is at an all-time high,” noted Jonathan Smoke. “Part of [that] is … the reasons people are purchasing tie into life events.
“Where this can be particularly important is with retiring baby boomers,” he added. “There’s a cohort of baby boomers who might think it’s in their best interest to stay put and make improvements so they can age in place.”
Affordability
A basic economics lesson: When inventory (supply) is thin on the ground, and demand is unchanged, you can expect prices to go up.
“Home construction is at full tilt and it’s still not filling the bill, particularly affordable housing,” noted Cook. “The average price of a new home is increasing still; we’re not serving the mid to lower-tier market with new home construction. So you’re not going to see much relief in affordability.”
Mortgage rates and ability to buy
“If you’re located in San Francisco, Los Angeles, Seattle, New York or Miami, rising mortgage rates might very well have an impact on you because you’re already stretching your budget as it is to get into a home that you can barely afford at historically low mortgage rates,” Gudell added. “In these places where affordability is already an issue, seeing these small bumps will already have a slight dampening effect, and we’ll see that effect not on all buyers but specifically first-time homebuyers or lower income folks. “People who are repeat buyers or buying higher-end homes won’t feel it so much.”
The big picture
“We still think affordability is going to be a challenge in some of the largest markets in the U.S. — L.A., the San Francisco Bay Area, the Pacific Northwest — but that said, the U.S. is still a very affordable place to buy a home,” said McLaughlin.
“Outside the big metros, things look pretty rosy for homebuyers. In many places, buyers wouldn’t have to spend more than 20 percent of their income to buy a home. “In some of the unaffordable markets, we may see pressures alleviate somewhat, but at the same time, nationally we are starting to see wages pick up, and we think that benefits those on the lower income distribution more than middle or upper income.” Still, “we are going to have to see many months or even years of solid wage gains to make up for price gains,” he added. “In general, home values will slow their climb next year,” said Gudell. “Currently we’re looking at 6-percent-ish annual appreciation; next year it’ll probably be half that, so a little bit of relaxation there, which will also feed into being more of a buyer’s market by the time we reached 2018.”
Millennial and first-time buyer trends
The biggest pool of potential homebuyers didn’t make huge strides toward homeownership in 2016 — so what will millennials be doing in 2017? “Our surveys of the prime first-time homebuying age people suggests a very high, 90 percent-plus, want to eventually own a home,” said Duncan. “What has tended to be the case is that they’re saying ‘just not right now,’ and that’s driven by the fact that their incomes haven’t risen as far as they need to and they’ve delayed getting married and having a baby relative to prior groups at this age point.” Duncan added that he thinks we might be at the bottom of the decline in the homeownership rate.
“Builders are seeing millennials, whose first home they are purchasing used to be the first move-up home, sort of leapfrogging that entry-level, and part of that may be there simply isn’t sufficient supply of the starter homes; they’ve just delayed buying until they could get the house that they wanted, the more midsized or first move-up house.”
Matthew Gardner
And Gardner thinks there is big potential for first-time buyers in 2017. “Although we have seen modest improvement in this buyer sector, I believe that the possibility of continued interest rate increases, in concert with a tightening labor market, will get many would-be buyers off the fence and into homeownership.”
8 experts predict what the 2017 housing market has in store
What will happen to mortgage rates, affordability, inventory and more
Key Takeaways
-Mortgage rates are likely to continue to increase throughout 2017.
-There will not be any easing in inventory, and affordability will still be a challenge in big markets.
-The potential is there for a large number of first-time buyers to enter the buying market, but they will face new challenges.
It’s been one unprecedented 2016, between the Brexit vote, the continued persistence of low mortgage interest rates and an election that seemed to temporarily throw markets for a loop.
What will the 12 months encompassing 2017 hold in store for housing?
Inman asked eight different experts to give their take:
Steve Cook, editor of Real Estate Economy Watch
Doug Duncan, senior vice president and chief economist at Fannie Mae
Mark Fleming, chief economist at First American
Matthew Gardner, chief economist at Windermere
Svenja Gudell, chief economist at Zillow
Ralph McLaughlin, chief economist at Trulia
Rodney Ramcharan, director of research at University of Southern California’s Lusk for Real Estate
Jonathan Smoke, chief economist at realtor.com
Here’s what they told us.
Mortgage rates
We’ve been spoiled with historically low interest rates, which haven’t risen despite threats to do just that over the past few years. No more. “The kind of rates we were getting earlier this year, down to 3.5 percent — those days are over,” said Cook.
Where will they go?
“We will likely still see volatility in mortgage rates over the next two, three, four months as [President-elect Donald] Trump unveils cabinet members and specific policies he wants,” said McLaughlin.
And the Federal Reserve is due to hike rates, too, which often puts pressure on mortgage rates one way or another. “I think in December we’ll see the Fed raising rates and we’ll see more Fed hikes in 2017, and with that, I wouldn’t be surprised if the 30-year fixed mortgage rate hits 4.75 percent,” said Gudell.
“I don’t believe we’ll see any pullback until after the inauguration, but even the best-case scenario suggests that the historically low rates that have been in place for the last few years are firmly in the rear-view mirror,” said Gardner. “My forecast is for the 30-year fixed rate to rise above 4.5 percent by year’s end, and worst case scenario, knock on the door of 5 percent.”
What does it mean?
Whether or not the rate increase will affect homebuyers (and especially first-time homebuyers) remains to be seen, but Duncan believes it’s at least partially contingent on income growth.
“If income growth picks up, then the rise in interest rates will affect refinancing, but not the home purchase activity. If incomes start to grow more strongly, it probably won’t affect buying as much as refinancing,” he said.
Rodney Ramcharan
“Just looking at the pricing data in terms of interest rates, the spike in interest rates should definitely slow things down,” said Ramcharan.
Fleming said that if mortgage rates get closer to 5 percent by the end of 2017, he would expect home sales to decline by about 4 percent from First American’s original projection — or by about 200,000 sales.
At what point would rising mortgage rates start to significantly dampen buyer demand?
“When I’ve looked at this topic historically in the past, what you tended to see was an absolute level that the market reacted to, and in years past that absolute level was closer to 6.5 and 7 percent,” said Smoke.
“But there are plenty of people who believe that because we’ve had a decade of historically low rates that the new threshold for that might be in the mid 5’s or even as low as 5 percent. So if we see them jump more than we’re anticipating, getting into the 5s, then we start to run into that issue.”
However, Smoke thinks that in the meantime, there’s a lot that buyers can do to mitigate the effects of rising rates, including looking for lower-priced homes, putting more money down or changing term lengths on a mortgage’s fixed-rate component.
“If Trump goes ahead with his infrastructure plan, which is probably a smart thing to do and a no-brainer as far as Congress is concerned, it will stimulate the economy and probably increase pressure on rates,” added Cook.
Inventory
Housing inventory — or the lack thereof — was a big deal in 2016, and it will continue to be a problem next year, experts believe.
“Historically, you’d want to be much closer to a million homes built or sold, and we’re roughly at half of that, so I don’t think builders are going to have an easy time magically ramping up,” said Gudell.
Inventory will likely fluctuate by market and price point, too. “For people at high ends and expensive properties you may very well see a surge, and the expectation is that tax cuts will come,” said Ramcharan. “Prior to Trump being President-elect, there was a slowdown at the top end.”
How mortgage rates will influence inventory
Because most housing inventory comes from the existing market (as opposed to new construction), what potential sellers decide do in 2017 will have an impact on the market as a whole — and rising mortgage rates might not be great for sales.
“We’ve had effectively a 30-year tailwind run of declining mortgage rates,” said Fleming. “At this point in time, maybe they go up or down a little bit, but the long-term trend over the past 30 years has been lower and lower and lower mortgage rates.” Consequently, existing homeowners with low mortgage interest rates might not be able to afford to move into a bigger house if it also comes with a higher rate. “How do we address the fact that the existing homeowner, the largest single source of housing supply, has a built-in financial disincentive to make that supply move?” asked Fleming. “You’re making that decision to supply as a function of what you can afford to buy, but all else held equal, because you lose that low rate and have to get a new mortgage at a higher rate, you might not be able to buy your own home back from yourself without an increased monthly payment.”
Where’s the entry-level housing?
“The thing that’s missing is entry-level housing available for sale, but also, all of the apartment-building that is going on is all class A properties, which is the most expensive — no one is building class C properties,” said Duncan.
Sellers unwilling to budge
“Household psychology has affected people; they’re willing to take less risk than they were in the past,” said Duncan. “You can see that in the remodeling data. People are staying in place and remodeling their existing homes with a higher probability than in the past.” “The median tenure in homes is at an all-time high,” noted Jonathan Smoke. “Part of [that] is … the reasons people are purchasing tie into life events.
“Where this can be particularly important is with retiring baby boomers,” he added. “There’s a cohort of baby boomers who might think it’s in their best interest to stay put and make improvements so they can age in place.”
Affordability
A basic economics lesson: When inventory (supply) is thin on the ground, and demand is unchanged, you can expect prices to go up.
“Home construction is at full tilt and it’s still not filling the bill, particularly affordable housing,” noted Cook. “The average price of a new home is increasing still; we’re not serving the mid to lower-tier market with new home construction. So you’re not going to see much relief in affordability.”
Mortgage rates and ability to buy
“If you’re located in San Francisco, Los Angeles, Seattle, New York or Miami, rising mortgage rates might very well have an impact on you because you’re already stretching your budget as it is to get into a home that you can barely afford at historically low mortgage rates,” Gudell added. “In these places where affordability is already an issue, seeing these small bumps will already have a slight dampening effect, and we’ll see that effect not on all buyers but specifically first-time homebuyers or lower income folks. “People who are repeat buyers or buying higher-end homes won’t feel it so much.”
The big picture
“We still think affordability is going to be a challenge in some of the largest markets in the U.S. — L.A., the San Francisco Bay Area, the Pacific Northwest — but that said, the U.S. is still a very affordable place to buy a home,” said McLaughlin.
“Outside the big metros, things look pretty rosy for homebuyers. In many places, buyers wouldn’t have to spend more than 20 percent of their income to buy a home. “In some of the unaffordable markets, we may see pressures alleviate somewhat, but at the same time, nationally we are starting to see wages pick up, and we think that benefits those on the lower income distribution more than middle or upper income.” Still, “we are going to have to see many months or even years of solid wage gains to make up for price gains,” he added. “In general, home values will slow their climb next year,” said Gudell. “Currently we’re looking at 6-percent-ish annual appreciation; next year it’ll probably be half that, so a little bit of relaxation there, which will also feed into being more of a buyer’s market by the time we reached 2018.”
Millennial and first-time buyer trends
The biggest pool of potential homebuyers didn’t make huge strides toward homeownership in 2016 — so what will millennials be doing in 2017? “Our surveys of the prime first-time homebuying age people suggests a very high, 90 percent-plus, want to eventually own a home,” said Duncan. “What has tended to be the case is that they’re saying ‘just not right now,’ and that’s driven by the fact that their incomes haven’t risen as far as they need to and they’ve delayed getting married and having a baby relative to prior groups at this age point.” Duncan added that he thinks we might be at the bottom of the decline in the homeownership rate.
“Builders are seeing millennials, whose first home they are purchasing used to be the first move-up home, sort of leapfrogging that entry-level, and part of that may be there simply isn’t sufficient supply of the starter homes; they’ve just delayed buying until they could get the house that they wanted, the more midsized or first move-up house.”
Matthew Gardner
And Gardner thinks there is big potential for first-time buyers in 2017. “Although we have seen modest improvement in this buyer sector, I believe that the possibility of continued interest rate increases, in concert with a tightening labor market, will get many would-be buyers off the fence and into homeownership.”
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