SCC Team BlogJust another WordPress weblog

WASHINGTON – Jan. 2, 2012 – Pending home sales continued to gain in November and reached its highest level in 19 months, according to the National Association of Realtors® (NAR).

The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 7.3 percent to 100.1 in November from an upwardly revised 93.3 in October. It’s also 5.9 percent above November 2010 when it stood at 94.5.

The index hasn’t been this high since April 2010 when it reached 111.5 as buyers rushed to beat the deadline for the homebuyer tax credit. The data reflects contracts but not closings.

The gains might result partially from delayed transactions, according to Lawrence Yun, NAR chief economist. “Housing affordability conditions are at a record high, and there is a pent-up demand from buyers who’ve been on the sidelines, but contract failures have been running unusually high. Some of the increase in pending home sales appears to be from buyers recommitting after an initial contract ran into problems, often with the mortgage.”

“November is doing reasonably well in comparison with the past year. The sustained rise in contract activity suggests that closed existing-home sales, which are the important final economic impact figures, should continue to improve in the months ahead,” Yun says.

Pending home sales are not affected by NAR’s recently published rebenchmarking of existing-home sales because the index uses a different methodology based directly on contract signings, and it’s adjusted for seasonality.

The PHSI in the Northeast rose 8.1 percent to 77.1 in November but is 0.3 percent below November 2010. In the Midwest, the index increased 3.3 percent to 91.6 in November and is 9.5 percent above a year ago.

Pending home sales in the South rose 4.3 percent in November to an index of 103.8 and remain 8.7 percent above November 2010. In the West, the index surged 14.9 percent to 121.2 in November and is 2.9 percent higher than a year ago.

The good coming from today’s otherwise bleak economy is some of the lowest interest rates in more than half a century.

So some people want to know if they should take advantage of that – to the point of refinancing more than what they actually owe on their home loan.

One 75-year-old wanted to ask certified financial planners if they thought it was a good idea for him to take out a $250,000 loan when he owes only $50,000. The extra $200,000 he could invest in relatively safe bonds, he said. Plus, he said he could deduct the mortgage interest on his federal income taxes.

Not so fast, said the planners.

What he wants to do is borrow to invest – and that’s not such a good thing, especially for a retiree, said Matt Saneholtz, president-elect of the Financial Planning Association of Greater Fort Lauderdale, Fla.

“Many advisers suggest not having any debt during the retirement years and I tend to agree,’’ Saneholtz said. He suggested the man ask his financial planner about the strategy.

And the retiree may not save as much in taxes as he thinks: If he’s in the 25 percent tax bracket, then he saves only about a fourth of the interest he pays, Saneholtz said.

Also, borrowing to take a tax deduction may not be a good idea as Congress has been floating the idea of eliminating the mortgage interest deduction, said panelist Blair Shein, a former president of the Financial Planning Association.

Shein said he doesn’t think that Washington will act any time soon to eliminate the popular deduction – but it may happen down the road.

The fragile economy is causing more baby boomers to delay selling their homes, even though they want to, according to a new survey of about 1,300 agents to gauge home selling and buying behavior among the baby boomer generation.

However, there is still a strong desire for investment properties and second homes among this generation.

“The baby boomer generation has driven the U.S. economy for years, and like many Americans, they may be anxious about their next real estate decision, “baby boomers are a very diverse group and cannot be described in generalities, but the survey clearly indicates that boomers who are financially secure are actively seeking to buy their retirement home, or a second home.”

Among the survey’s findings:

• More than one-third (34 percent) of real estate professionals say younger baby boomers (those aged 47-55) are interested in purchasing a second home. Meanwhile, about 22 percent of older baby boomers (ages 56-64) are interested in buying a second home.

• 31 percent of younger baby boomers (47-55) are looking to sell their current home and trade up to a larger home, while only 6 percent of older baby boomers desire a larger home. For the majority of baby boomers looking to downsize, their primary reason is for a simpler lifestyle.

Of more than 3,000 homeowners and renters polled by Hanley Wood, 30 percent said they were living with relatives – the highest rate of doubling up since the Great Depression thanks to economic and housing market slumps.

While poll takers said stricter mortgage standards, larger downpayment requirements, and economic and employment concerns have hindered home purchases, 87 percent of homeowners and 73 percent of renters still believe homeownership is critical to the economy.

As many as 2 million potential owners are waiting for the right time to buy, with 29 percent of renters and 19 percent of homeowners planning to purchase a new home during the next couple of years.

A buyer looking to cash in on vacation- or second-home values should consider the following:

1. Is it rentable? Even if a buyer isn’t planning to rent, he or she may still want to consider the rental aspects of the property, particularly since a home’s rental potential can affect its resale value, says Catherine Jeffrey, a real estate professional in Fredericksburg, Texas. Buyers should check with the homeowners association or township to ensure that short-term rentals are allowed.

2. How do you plan to use the home? The loan rate depends, in part, on how the property will be used. For example, if buyers intend to use the property primarily as a second home, they’ll pay about the same mortgage rate as a primary residence, says HSH Associates vice president Keith Gumbinger. However, if they plan to get rental income from the property, the property will be treated as an investment, which means they may need to pay as much as 25 percent of the buying price for the downpayment and up to one percentage point more in interest.

3. Are you eligible for the tax benefits? If owners rent the house for two weeks or less per year, they won’t have to report income to the IRS, and they’ll be able to deduct property taxes and mortgage interest. If the owners stay in the home for less than two weeks or have 10 percent rental days, whichever is greater, they’ll be able to deduct operating costs, such as cleaning and maintenance fees, as well as the interest and property tax, says Rick Shapiro, a CPA in West Hartford, Conn. He suggests homeowners talk with a tax expert to find out what tax benefits apply.

Renting offers zero tax breaks,

A few tax benefits of homeownership:

▪ Home mortgage interest deduction: Homeowners can take an itemized deduction on interest paid on a mortgage or mortgages of up to $1 million for a principal residence and/or second home. This deduction could potentially reduce the cost of borrowing by one-third or more.

▪ Property tax deduction: Homeowners can deduct from their federal income taxes state and local property taxes paid on the home.

▪ Deductible homebuying expenses: Several closing costs in a home purchase are also deductible, such as loan origination fees (points), prorated interest on a new loan and prorated property taxes paid at settlement.

▪ $250,000/$500,000 home-sale exclusion: Homeowners who have lived in their home for two of the prior five years prior to sale do not have to pay income tax on the majority of their profit – $250,000 for single homeowners and $500,000 for married homeowners who file jointly.

▪ 14 days of free rental income: Homeowners can rent the home up to 14 days during the year and pay no tax at all on the rental income.

Thought these facts were quite interesting.

Homeowners should start factoring in taxes more as they pick where to live, particularly as some states’ dramatic tax increases make them less affordable.

States with the largest population gains from the 2010 according to  U.S. Census are also known as low-tax states, such as Florida, Texas and Nevada, Reuters News reports.

“There can be pretty big dollars involved,” says Lisa Osofsky, a CPA and financial adviser who assists clients in New Jersey, New York and Connecticut. For example, a person earning several million dollars could save $50,000 or $100,000 by living in a lower-tax state, she says.

A family of four with a  $150,000 income could save $13,368 in state and local income taxes if they moved from New York to Florida, according to figures by Bob Meighan of TurboTax. They’d likely save even more when property taxes and estate taxes are figured in too.

How about Retirees they particularly may be lured to low-tax states.  Retirees who have money in a tax-deferred retirement account during their work years would profit if withdrawing the money in a low-tax state.  I find this very interesting.

A couple with $85,000 in retirement income and Social Security benefits could make an extra $112 a month in income tax savings by moving from California to Michigan, as well as cashing in on an overall lower cost of living.

Who wants to live in Michigan, but Florida would have far better weather and the benefit would still be there.

Money Magazine is urging people a few years from retirement who plan to move when they quit work to consider buying now while home prices and mortgage rates are low.

Buyers who intend to use the place as a second home will pay the same rate as they would pay for a primary residence. If they intend to rent the property out until they retire and they need the rental income to qualify for the mortgage, lenders will consider that an investment property and charge a half to a full percentage point more.

Still, the idea remains “pretty compelling,” says Justin Krane, a certified financial planner in Los Angeles

TALLAHASSEE, Fla. (AP) – Sept. 30, 2010 – Floridians who are struggling to make mortgage payments are getting additional help from the federal government’s Innovation Fund for the Hardest Hit Housing Markets.

The Treasury Department this week approved a plan by the Florida Housing Finance Corp. to redirect $239 million in previously approved foreclosure-prevention assistance expand options for unemployed workers.

Treasury also announced the state housing agency is getting $401 million more in Hardest Hit money to expand the reach of its programs.

Assistant Treasury Secretary Herb Allison said the aid is being targeted to areas and states such as Florida, where unemployment and steep home price declines have been concentrated.

WASHINGTON – Sept. 8, 2010 – An increasing number of economists and housing analysts are urging the government to step back and let the housing market fall where it may.

“Housing needs to go back to reasonable levels,” says Anthony B. Sanders, a professor of real estate finance at George Mason University. “If we keep trying to stimulate the market, that’s the definition of insanity.”

“We have had enough artificial support and need to let the free market do its thing,” housing analyst Ivy Zelman says.

Even the National Association of Home Builders hasn’t been supportive of another tax credit, because its members believe that in order for one to have impact it would have to be worth at least $25,000 — an unlikely proposition.

“Our members are saying that if we can’t get a very large tax credit — one that really brings people off the bench — why use our political capital at all?” says David Crowe, NAHB’s chief economist.

What do you think?