Yajnesh Rai

Fed Leaves Rates Alone, Signals Little Change Ahead | Realtor Magazine

As the economy continues its record-long expansion, the Federal Reserve voted to leave its key benchmark rate unchanged at its meeting Wednesday. Consumers buying a home or car should continue to see lower borrowing costs as a result. Even though the Fed’s key rate isn’t directly tied to mortgage rates, they do often influence them.

This marked the final Fed meeting of the year for the Federal Reserve. Officials suggested no rate changes for 2020 and projected only one increase in 2021 and one in 2022.

The Fed’s interest rates remain low by historical standards at 1.5% to 1.75% (down from 5.25% before the last recession). Fed officials adjust interest rates in helping to speed or slow economy, when necessary.

With interest rates holding steady, “this is the time to pay down debt and boost savings,” Greg McBride, chief financial analyst at Bankrate.com, told CNBC.

The average 30-year fixed-rate mortgage is substantially lower since the end of last year. Bankrate reports that it is averaging 3.9% this week, down from 4.9% a year ago. Those who purchased their house in the last year will want to consider refinancing into a lower rate, which could save them about $150 a month, McBride says.

As for the Fed, it cut its key interest rate three times this year between July and late October. But the economic outlook remains strong and they are seeing little reason to continue cutting rates.

“Our economic outlook remains a favorable one,” Jerome H. Powell, the Fed chair, said on Wednesday following the meeting. Employment and consumer spending remain strong, and recession fears from six months ago have faded. “With a strong household sector and supportive monetary and financial conditions, we expect moderate growth to continue,” Powell said. “Inflation is barely moving up, notwithstanding that unemployment is at 50-year lows and expected to remain there. We have learned that unemployment can remain at quite low levels for an extended period of time without unwanted upward pressure on inflation.”

Specialty Rooms Are in Demand: Which Rank Highest? | Realtor Magazine

Home shoppers—particularly millennials—are ranking specialty rooms high on their priority list during their search. These rooms include laundry rooms, home offices, mud rooms, sun rooms, and more. The National Association of Home Builders surveyed buyers to find which of these rooms rank highest on their lists. The NAHB considers specialty rooms anything except bedrooms, bathrooms, or the kitchen—or what’s considered the essentials in a home.

A laundry room is considered an essential or must-have specialty room among millennial home buyers, the NAHB’s survey found. A dining room was second on the list of most wanted specialty room among millennials (39% considered it “desirable” and 38% consider it an “essential/must have”).

National Association of Home Builders

 

Millennials also showed a strong preference for an exercise room (with 57% wanting one). But that preference tended to wane with age. For comparison, 50% of Gen Xers said they wanted an exercise room, 32% of baby boomers, and only 17% of seniors. Millennials also expressed an interest in media and game rooms and two-story entry foyers, more so than other age groups.

Buyer Traffic Remains High This Fall | Realtor Magazine

The weather may be getting chillier in many parts of the country, but that hasn’t deterred potential home buyers from touring homes for sale. Buyer traffic in October saw an uptick in all four major regions of the U.S. and also marked the first annual increase fir the month since 2017, according to the latest ShowingTime Showing Index report.

Overall, buyer traffic increased 5.5% year over year in October, the largest increase since March 2018. The South region saw the biggest uptick with a 10.8% year-over-year increase, ShowingTime’s data showed.

 

ShowingTime

“We are seeing expected seasonal slowdowns in October, although this fall continues to be more active than last year in terms of showing traffic,” says Daniil Cherkasskiy, ShowingTime chief analytics officer. “The increase in showing activity in both the South and West regions is noteworthy given that both had previously reported nearly year-long drops in traffic prior to August.”

 

Lower mortgage rates may be drawing buyers out. Freddie Mac reported that the 30-year fixed-rate mortgage averaged 3.68% this week, down from 4.75% a year ago.

On average, home buyers tour a median of nine homes and look for a house over 10 weeks before they buy, according to the 2019 Profile of Home Buyers and Sellers report, produced by the National Association of REALTORS®. 

The ShowingTime Showing Index is compiled using data from property showings scheduled using ShowingTime products and services. The service facilitates more than 4 million showings each month.

Mortgage Rates Stay Steady This Week | Realtor Magazine

The 30-year fixed-rate mortgage didn’t budge this week, maintaining its same 3.68% average from last week.

“This week the economy sent mixed signals, leaving mortgage rates unchanged,” says Sam Khater, Freddie Mac’s chief economist. “Survey data for manufacturing and service industries varied while construction spending fell modestly. However, homebuyer demand continued to improve, rising eight percent. Clearly, home buyers remain bullish on the real estate market.”

Freddie Mac reports the following national averages with mortgage rates for the week ending Dec. 5:

• 30-year fixed-rate mortgages: averaged 3.68%, with an average 0.5 point, holding the same as last week. Last week at this time, 30-year rates averaged 4.75%.
• 15-year fixed-rate mortgages: averaged 3.14%, with an average 0.4 point, falling slightly from last week’s 3.15% average. A year ago, 15-year rates averaged 4.21%.
• 5-year hybrid adjustable-rate mortgages: averaged 3.39%, with an average 0.4 point, falling from last week’s 3.43% average. A year ago, 5-year ARMs averaged 4.07%.

Investment Property: How Much Can You Write Off on Your Taxes?

There are certain things you can do as a real estate investor to help manage your tax bill and maximize your after-tax return on investment. To do so, however, you need to understand the primary ways in which investment real estate portfolios get taxed. You must also have a general grasp of some abstract concepts like calculating your tax basis, as well as the depreciation of capital investments.

Warning: This article is not going to make you an expert. But it will acquaint you with the basic terminology so you can be better prepared for a meeting with your tax adviser.

Taxation of rental income

The IRS taxes the real estate portfolios of living investors in two primary ways: income tax and capital gains tax. (A third way, estate tax, applies only to dead investors.)

Rental income is taxable — as ordinary income tax. That means you must declare it as income on your tax return and pay income tax on it. Unlike wages, rental income is not subject to FICA taxes.

Your income is everything you get from rents and royalties on the property, minus any deductible expenses. You can’t deduct everything though. You can only deduct mortgage interest and repairs you make that restore the property to its original minimally functional condition. You can’t deduct capital investments like new buildings, additions or renovations. More on these later.

Capital gains tax

The second tax bill you need to worry about is capital gains tax. The IRS taxes you on any net profits you get out of a property when you sell it. If you’re flipping the property and you’ve owned it for less than a year, you pay short-term capital gains tax, which is the same rate as your marginal income tax rate. If you’re in the 28% tax bracket, you’ll pay a 28% tax on short-term capital gains.

If you hold the property for 12 months, you’ll qualify for more favorable long-term capital gains. Depending on your marginal income tax bracket, these taxes could range from 0% to 15%. In every bracket, however, the IRS takes a smaller cut out of long-term gains than out of ordinary income or short-term gains.

Calculating capital gains

You pay capital gains tax on the difference between your selling price in the property and your adjusted tax basis. Your adjusted tax basis in a property is the original cost you paid for the property, plus any amount invested in renovations and improvements (including labor costs on these projects) that you have not previously deducted for taxes.

If you have deductions associated with the property, you subtract them from your tax basis. If your adjusted tax basis is higher than your sale, you have a capital loss. You can subtract capital losses from a given year from capital gains to reduce your tax bill. If you have more capital losses than capital gains, you can “carry forward” these capital losses into future years to offset future capital gains. If you have no capital gains, you can deduct $3,000 annually until you have recognized all your capital loss carryforward.

How to defer capital gains taxes: an intro to like-kind exchanges

The IRS provides an important exception to capital gains taxation, made-to-order for real estate investors: If you own an investment property, you can sell your property at a profit and roll your money over into another property within 60 days without having to pay capital gains taxes at all. This transaction is known as a Section 1031 exchange, named for the section of the U.S. Revenue Code that allows it. You cannot swap your rental property for a personal residence, or vice versa. For this reason, these exchanges are called like-kind exchanges, in that the property you replace it with needs to be substantially similar to what you sold.

The 1031 exchange makes it possible for real estate investors to defer paying capital gains tax, which is another advantage over investing in mutual funds, stocks, bonds and other securities or collectibles. Outside of a retirement account, you have to pay tax on gains in these items by April 15 of the year after you sold them.

Depreciation and amortization

This is a broad concept, so we can only cover the very basics here. When you buy investment property — be it a building, a computer or a horse — the IRS knows that the item won’t stay young and new forever. Over time, the property will decrease in value. Depreciation is the process of claiming a deduction to compensate you for the property’s decrease in value during the year.

Note: You can’t depreciate your personal residence. You can only depreciate investment property. For more information on the process of depreciation, see IRS Publication 946, How To Depreciate Property.

Land, of course, doesn’t depreciate. But minerals underneath the land do. If you are extracting oil or other minerals, or timber, for that matter, from the land, you will account for the gradual loss in value through a process called depletion.

Likewise, when you make a purchase of investment real estate or capital equipment with a useful life of longer than a year, the IRS knows you will be using that property to generate income for a long time to come.

Except in certain circumstances, the IRS does not allow you to deduct the full cost of your investment in the first year. Instead, you must amortize your investment over a number of years. For real estate, you must spread the deduction out over 27.5 years.

Passive activity rules

Again, these rules are complex. But in a nutshell, if you are a passive investor — meaning you are not working day to day in the business of managing your real estate investments — you are subject to passive activity rules. Basically, you can only deduct passive losses to the extent that you can cancel out gains from passive activities. These rules restrict your ability to use passive activity losses to offset capital gains elsewhere in your portfolio. Congress implemented these rules in 1986 to eliminate tax loopholes and abusive tax shelters.

Most individual investor landlords can deduct up to $25,000 per year in losses on rental properties, if necessary (subject to income limitation). Hopefully you won’t have to make use of this provision much.

Property taxes

Expect to pay property taxes to local and county governments each year. Your local government will assess the market value of your property at its “highest and best use” and charge you a percentage of that value every year. You can deduct property taxes against your rental income, though, provided the property tax is uniformly assessed throughout the jurisdiction and is not a special assessment.

Other tax deductions

Watch for opportunities to take deductions for these common real estate investment expenses:

• Mortgage interest
• Legal fees related to your investment properties or business
• Mileage
• Business use of your home (the home office deduction)
• Advertising fees

Employees (but if they are working on capital improvements or renovations, you have to amortize their labor costs as part of your capital investment, rather than as a current year expense.)

Don’t Believe These 5 Myths About Real Estate Agents

Buyers and sellers often enter the market with misconceptions about real estate agents — how they work, how the process works and what the agency relationship is all about.

It’s helpful to point out, without getting too far into the weeds, that in any one real estate transaction, there are most likely two agents: one for the buyer and one for the seller.

Here are five myths (and five truths) about working with both buyer’s and seller’s agents.

1. Agents get a 6% commission, no matter what

Most people assume that their agent is pocketing the entire commission. That would be nice, but it’s just not accurate.

Truth

First, it’s helpful to know that the seller pays the commission, and they split it four ways: between the two brokerages and the two agents.

Finally, the brokerage commission isn’t fixed or set in stone, and sellers can sometimes negotiate it.

2. Once you start with an agent, you’re stuck with them

If you’re a seller, you sign a contract with the real estate agent and their brokerage. That contract includes a term — typically six months to a year. Once you sign the agreement, you could, in fact, be stuck with their agent through the term. But that’s not always the case.

Truth

If things aren’t working out, it’s possible to ask the agent or the brokerage manager to release you from the agreement early.

Buyers are rarely under a contract. In fact, buyer’s agents work for free until their clients find a home. It can be as quick as a month, or it can take up to a year or more. And sometimes a buyer never purchases a house, and the agent doesn’t get paid.

Before jumping into an agent’s car and asking them to play tour guide, consider a sit-down consultation or a call, and read their online reviews to see if they’re the right fit.

Otherwise, start slow, and if you don’t feel comfortable, let them know early on — it’s more difficult to break up with your agent if too much time passes.

3. It’s OK for buyers to use the home’s selling agent

Today’s buyers get most things on demand, from food to a ride to the airport. When it comes to real estate, buyers now assume they need only their smartphone to purchase a home, since most property listings live online.

Truth

First-time buyers or buyers new to an area don’t know what they don’t know, and they need an advocate.

The listing agent represents the seller’s interests and has a fiduciary responsibility to negotiate the best price and terms for the seller. So working directly with the selling agent presents a conflict of interest in favor of the seller.

An excellent buyer’s agent lives and breathes their local market. They’ve likely been inside and know the history of dozens of homes nearby. They’re connected to the community, and they know the best inspectors, lenders, architects and attorneys.

They’ve facilitated many transactions, which means they know all the red flags and can tell you when to run away from (or toward) a home.

4. One agent is just as good as the next

Many people think that all agents are created equal.

Truth

A great local agent can make an incredible difference, so never settle. The right agent can save you time and money, keep you out of trouble and protect you.

Consider an agent who has lived and worked in the same town for around ten years. They know the streets like the back of their hand. They have deep relationships with the other local agents. They have the inside track on upcoming deals and past transactions that can’t be explained by looking at data online.

Compare that agent to one who’s visiting an area for the first time. Some agents aren’t forthright and might be more interested in making a sale. Many others care more about building a long-term relationship with you, because their business is based off referrals.

5. You can’t buy a for sale by owner (FSBO) home if you have an agent

In a previous generation, sellers who wouldn’t deal with any agents tried to sell their home directly to a buyer to save the commission.

Truth

Smart sellers understand that real estate is complicated and that most buyers have separate representation. And many FSBO sellers will offer payment to a buyer’s agent as an incentive to bring their buyer clients to the home.

If you see a FSBO home on the market, don’t be afraid to ask your agent to step in. Most of the time the seller will compensate them, and you can benefit from their knowledge and experience.

The Secret to No-Fuss Holiday Decor? Use What You Already Have

Hold your holiday decor horses! Before you purchase gobs of tinsel and piles of twinkle lights, take another look at items you already have — they may be the holiday embellishment you’ve been looking for.

By hunting through your cabinets and closets, you can easily repurpose common household items into yuletide decor for your abode. Need a little inspiration? These design experts share how they style up everyday objects into festive flourishes.

Dig through the craft closet

“Bust out the burlap! I’ve been known to use burlap for anything from tablecloths to a Christmas tree skirt. It’s so versatile and lends an organic, rustic vibe.”
— Brooke Wagner, Brooke Wagner Design

“Roll out brown or black butcher paper on your table like a runner. It somehow elevates everything you set on it. Plus, you can write your guests names on it in black marker (or chalk marker for black paper) instead of place cards.”
— Jenn Muirhead, Jennifer Muirhead Interiors

“Paint a wall with chalkboard paint. It’s the perfect themed accent wall that’s fun and creative, and it gets the kids involved, too.”
— Melissa Martin Molitor, MMM Designs-Interiors

“Tie ribbon on everything! Thread it through chandeliers or banisters. Or put festive printed fabric in picture frames and scatter them throughout the house.”
— Katie Schroder, Atelier Interior Design

Scour the kitchen cupboards

“Place a set of teacups on a pretty tray, and fill each cup with a succulent or small flower arrangement. Or create a centerpiece by placing candles on a serving tray or cake stand.”
— Gita Jacobson, In The Deets

“Fill a large glass serving bowl — or maybe a punch bowl or trifle bowl — with whatever seasonal item you want. Just use the same thing so it looks purposeful and pretty.”
— Jenn Muirhead, Jennifer Muirhead Interiors

“Take an ordinary flower vase, and stick glass ornaments inside with a string of white lights. It’s a pretty display that’s simple and creative!”
— Wendy Berry, W Design Interiors

Ransack the fridge

“Dried fruit garland is still classic and sweet. Take a needle and thread to some popcorn, cranberries or dried sliced oranges, and string it up wherever you want to!”
— Jenn Muirhead, Jennifer Muirhead Interiors

“Cut up fresh fruit and put it in a pitcher before adding flowers for a centerpiece. Throw in some cloves and cinnamon sticks for added flair. For a dash of festivity, use oranges with cloves in them for place card settings.”
— Christine Estep, Jackson Thomas Interiors

Sift through the closet

“Use a vintage plaid throw as a tablecloth or runner. Or decorate a small tabletop tree with jewelry or ribbon.”
— Katie Schroder, Atelier Interior Design

“Repurpose one of your favorite scarves as a cozy centerpiece runner.”
— Gita Jacobson, In The Deets

Forage in the yard

“Instead of placing a star at the top of my Christmas tree, I’ll take a handful of fallen sticks and tie them together at the top of the tree with a raffia bow. I’ll also layer pine cones throughout my tree to balance out the glass ornaments for an organic, natural feel.
— Wendy Berry, W Design Interiors

“I gather sticks cedar branches, along with magnolia, holly, boxwood and pine. I spread them around the bases of containers or arrange them in colorful tea tins. It’s an easy way to bring in greenery without spending too much money.”
— Susan Jamieson, Bridget Beari Designs

“I love to add a garland of fresh greens around my dining room chandelier and hang ornaments from it. The fresh scent mixed with holiday cooking is wonderful.”

— Jennifer Stoner, Jennifer Stoner Interiors

Look everywhere!

“Scatter some festive items that aren’t necessarily holiday themed. For example, we’ll set out some naturally shed antlers in the fall or a tuxedo hat around Christmas. I’ll mix in a few of these types of things that feel seasonally appropriate but aren’t necessarily traditional holiday decor.”
— Summer Thornton, Summer Thornton Design

“Give a corner of your home a holiday touch with just a handful of tweaks. We made a sitting area more festive by adding new pillows (they needn’t have an overt holiday motif – a wintery look works just as well), some evergreen cuttings from the yard (with a few sprigs of berries), a stack of wrapped gifts, a scarf and bow for our deer, and a teddy bear found in the attic.”
– Chris Stout-Hazard, Roger + Chris

“Gather objects with a similar color scheme. I pull out all of my white and silver anything and group them together — candle holders, vases, pots, ribbon. Then I go to my neighbors’ yards for magnolia and holly cuttings and get laurel out of my own yard. I just keep everything green, white and silver — jumbled together it works.”
— Lesley Glotzl

“Repurpose a metallic vessel into a vase for displaying rich greenery or arrangements of holiday objects. A brass champagne cooler, a bright silver trophy cup or even small copper mugs could work perfectly. Add fresh pops of red with cranberries, pomegranates, deep-red apples or even a few red roses.”
— Kerrie Kelly, Kerrie Kelly Design Lab

Winter Is the Best Time for Home Buyers | Realtor Magazine

The best days of the year to buy a home all fall in the month of December, according to a new analysis released by ATTOM Data Solutions, a real estate data firm.

Buyers who close on a home purchase the day after Christmas—Dec. 26—will likely realize the biggest discounts below full market value compared with any other day of the year, according to the study of more than 23 million single-family home and condo sales over the past six years.

“Closing on a home purchase the day after Christmas or on New Year’s Eve can be one of the most financially beneficial holiday-season gifts you can get,” says Todd Teta, chief product officer with ATTOM Data Solutions. “While lots of folks are shopping the day-after Christmas sales or getting ready to ring in the New Year, our data shows that buyers and investors are buying homes on those days at a discount. That’s a far cry from buying during June, when they are likely paying about a 7 percent premium.”

ATTOM researchers pegged Dec. 26, Dec. 31, and Dec. 4, in that order, as the best days for home buyers to grab the biggest discounts on their home sale.

The best month for buyers may differ regionally. The states that tend to see the biggest overall discounts below full market value in these corresponding months were Ohio (–7.4% in January); Michigan (–7.2% in February); Delaware (–6.3% in February); Tennessee (–6.2% in January); and New Jersey (–5.8% in December).

Mortgage Prepayments Climb to 6-Year High | Realtor Magazine

Mortgage prepayments, a common gauge for housing and refinancing demand, jumped to its highest level since May 2013—a good sign for the market, according to a new analysis from data and analystics firm Black Knight. Mortgage prepayments were at 1.81% in October, more than double the figure a year ago. That represents a 134% year-over-year increase, Black Knight reports.

What’s causing the improvement? Low mortgage rates are prompting more people to refinance their mortgage or buy a home. Consumers typically pay off previous loans when they buy a new home.The uptick is apparent: Existing-home sales increased 1.9% in October to a seasonally adjusted annual rate of 5.46 million—4.6% higher than a year ago, the National Association of REALTORS® reported last week.

While prepayments are rising, mortgage delinquencies decreased to 3.39% in October, which is just 3 basis points from a record low set in May. The lowest mortgage delinquencies are in Colorado, Washington, and Oregon, the report notes.

Survey: Buyers More Flexible on Commute Than Home Size | Realtor Magazine

Most consumers are willing to extend their commutes in order to find a single-family home with a yard, according to a new Redfin survey of 1,400 consumers. Eighty-nine percent of survey respondents say they would choose a single-family home with a backyard over a unit in a triplex, even if the latter was closer to their job. For millennials, that figure is 93%, the study shows.

Though buyers overall show a preference for single-family homes, the properties needn’t be large. The median home size in the U.S. has been dropping, perhaps due in part to higher home prices, researchers note. Median home size peaked at 2,467 square feet in 2015 but lowered to 2,386 square feet in 2018.

The price gap between single-family homes and condos is falling in some of the nation’s priciest locations. But as demand rises, the gap is increasing in inland areas typically known for greater affordability. For example, in coastal San Jose, Calif., single-family homes sell for 25% more than comparable condos, which is down from 31% in 2013. Likewise, in Los Angeles, there is a 19% premium on single-family homes, down from 27% six years ago. “The decline in those places could mean single-family homes are becoming less valuable to buyers,” the study notes.

However, in areas known for greater affordability, prices for single-family homes over condos have risen, such as Birmingham, Ala. (now a 29% premium, up from 15%). The premium for single-family homes has also risen over the last six years in other areas like Houston (a premium of 19%, up from 9%) and Tulsa, Okla. (a premium of 27%, up from 12%).

More than a quarter of buyers—28%— say that plenty of living space is the most important factor in their home choice, according to the survey. “This is another way America is dividing between coastal cities and the more affordable heartland,” says Glenn Kelman, Redfin’s CEO. “All else being equal, almost everyone would prefer a house over a condo, and that preference is only getting stronger in most parts of America. But in the big city, that preference is actually getting weaker. As more folks move from San Francisco or New York in search of that house with a white picket fence, the ones left behind will be those most comfortable with life in a condo or townhouse.

“The question now becomes whether cities in the middle of a transition from affordable to affluent—like Minneapolis, Seattle, Portland (Ore.), Austin (Texas), Nashville (Tennessee), and Charlotte (N.C.)—can use local zoning laws to shift their citizens’ preference for single-family homes so that it becomes less strong over time, or if people will shift away from them.”

Home buyers appear more willing to settle for a condo or another unit with shared walls if the home itself isn’t the defining reason why they’re moving, adds Daryl Fairweather, Redfin’s chief economist. “In a sprawling place with an emphasis on private homes like Houston or Las Vegas, people may actually be moving there because there are plenty of affordable, large single-family homes where they can raise a family.”

Researchers note that if single-family homes continue to command more of a premium in affordable inland areas but less in expensive coastal areas, it could further exacerbate the divide that’s already happening between the way people live on the coasts and the middle of the country.