Should You Sell Your Home?

Should You Sell Your Home?

Could now be a good time to sell your home?

The Dow Jones Industrial Average is just under 25,000.  Deputy chief economist Len Kiefer announced a positive economic outlook saying “Treasury yields are higher and the economy has strengthened since December”.  As a result, and as I projected in my fall blog, interest rates on a 30 fixed mortgage have gone up; and they’ve gone up 48 basis points since January.  When this happens, historically the real estate market slows, however not this time.  Coming off of a strong 2017, there still wasn’t enough inventory to meet the demand of the buyer community.   “We think the strength of the economy and pent up housing demand should allow the U.S. housing market to post modest growth this year even with higher mortgage rates” Kiefer goes on to say.  Along with interest rates and buyer demand, home prices have also been going up, showing an increase of 7.1% over the last year.  That means your $350,000 home will now sell for roughly $375,000.

For so many people, the equity they have in their home is a big part of their net worth.  I always tell my clients, I don’t determine the price of your home nor does the consumer, the market dictates the price of a home.  So we are in a unique moment in time where while rates have increased, so too have the number of qualified buyers and the value of your home; yet inventory remains low.   Right now, you have an opportunity to perhaps be one of just a few, perhaps even the only home for sale on your street or in your neighborhood!  What does this all spell out?  Well, if you’re a home owner that is looking to downsize, now may be a very good time to list.  If you are a homeowner and are looking to go bigger, you may also consider listing because rates are still very low, but are climbing.  I recently had a client say, “if I list now, I may get more money from the sale of my home, but I’m also going to pay more for my next home!”  My response was simple: “use a mortgage calculator and plug in 4.5%, 5%, 6% and 7% because in doing so you will see the impact mortgage rates will have on your decision making.  All I’m saying is that if, in the back of your mind you have considered selling, you should have a market analysis done on your home, be presented with the facts and make an educated decision.  I’ve seen the cycle of real estate for many years; too many people wait too long, in hopes to max out their equity, which is extremely difficult to project.

 

 

 

 

 

Tax Bill Explained

Tax Bill Explained

Tax Cuts & Jobs Act:  How will the new tax laws affect you?

Part 1:  The new brackets

Part 2:  Deduction Changes

Part 3:  The Big Winners

Disclaimer: The examples provided are for illustrative purposes. Individuals should consult a tax professional regarding their unique financial position

The Brackets:

 

In comparison to the old tax brackets, the new rates are slightly lower and the brackets are broader.  In simple terms, the new tax brackets as a whole, will save most people some money, which is always great.  What’s important to look at is where you were last year (what tax bracket) and if this year was a mirror image, what would happen under the tax cuts and jobs act.

For example, if you were filing single and earned $157,000 under the new tax brackets, you would pay 24% in taxes, or $37,680, giving you a net of $119,200.   Last year you would have paid 28%, ($43,960) netting you $113,040.   So now in 2018, you have $6,160 more in your pocket.  That’s a new car payment, a vacation or money you can put into a retirement account, all good stuff that will trigger spending and/or investing which boosts the overall economy.  However, by making just 3,000 more, $160,000, you fall into the 32% tax bracket in 2018 and were still in the 28% bracket in 2017.  So by making $3,000 more, you only bring home $108,800 in 2018 ($160,000 – $51,200 )versus $111,200 in 2017.  In this case, you took a 4% hit in net income ( 2017 income on 160k= $111,200 vs. 2018: 108,800).  In that scenario, you would earn $2,400 less under the new tax brackets.

Here’s another quick example:

Johnny made $40,000 as a single tax payer in 2017.  His tax rate was 25%, paying $5,739 in taxes.  Under the 2018 tax bracket, Johnny is now only paying $4,740 in taxes (22%), giving him an extra $999 to save or spend.  That’s just on the tax bracket side of things as Johnny will also benefit from the increase in standard deductions.

As you can see in the diagram, they have doubled the standard deductions and eliminated the personal exemptions.  Being that 70% of American’s don’t itemize their deductions, this is also an added savings for most.

Deductions

Tax brackets, rates and credits play a large role in how much a taxpayer will pay, but the amount of taxable income plays an EVEN BIGGER role.  So here’s a very simple reference for my readers to know and understand about the new law:

  1. Personal and dependent exemptions are eliminated. However, child tax credits have increased through 2025.  The TCJA increases the maximum child tax credit from $1,000 to $2,000 per child.  The refundable portion of the credit increases from $1,000 to $1,400.  So taxpayers who don’t owe tax can still get a credit of up to $1,400.  The higher child tax credit will be available for qualifying children under the age of 17 (as under current law).    In addition, the TCJA allows a new $500 credit for dependents who do not qualify for the child tax credit.  These are children who are too old for the child tax credit, or non-child dependents.  No social security number is required, you can cliam the credit using an Individual Tax Identification Number (ITIN) or and Adoption Tax Identification Number (ATIN).
  2. Standard Deductions Increase
    1. $12,000 (single)
    2. $18,000 (head of household)
    3. $24,000 (married filing jointly)

This means you don’t have to file a schedule A.  That said, you may want to continue to track your expenses so you know whether or or not the standard deduction or itemized deduction process favors you more.

  1. Changes to Itemized Deductions:

Fully eliminated:

  • Employee business expenses
  • Tax preparation fees
  • Investment interest expenses
  • Personal casualty and theft losses (with the exception of federally declared disasters)
  • Moving expenses (minus US military required relocation)
  • Alimony- no longer deductible AND the spouse receiving alimony does not have to report alimony as income

Limitations put on old deductions:  it’s very evident, one is encouraged to use the new standard deductions offered vs itemization.  If you’re one of the 30% of American’s that used itemized deductions, you need to know what has been modified or eliminated.

Limited:

  • SALT Tax (state and local tax): still deductible but only up to a combined total limit of $10,000 ($5,000 if MFS).  This can make a difference in high taxed states like New York or California
  • Mortgage Interest
    • Limited to interest paid on up to a $750,000 mortgage ($375,000 if MFS) on a mortgage taken after 12/14/2017
    • Home Equity Loans- The final bill repeals the deduction for interest paid on home equity debt through 12/31/25. Interest is still deductible on home equity loans (or second mortgages) if the proceeds are used to substantially improve the residence.
  • If you’ve taken out a mortgage prior to 12/15/2017, you can deduct mortgage interest up to a $1MM mortgage moving forward. That applies if you refinanced your mortgage prior to 12/15/2017 ($550k if MFS)

Modifications

  • Medical expenses- still deductible to the extent they exceed 7.5% of AGI (adjusted gross income)
  • Charitable contributions: These have expanded.  You may contribute up to 60% of your AGI, up 10% from the former 50% number

Unchanged

  • IRA deduction
  • Health Savings Account deduction
  • Student loan interest
  • Educator expense deduction ($250 for unreimbursed classroom supplies)
  • Deductions for the self-employed (self-employment tax, health insurance, qualified retirement contributions etc)

Notables:

  • You can continue to claim the American Opportunity Credit of up to $2,500 per year for the first 4 years of college education. In addition, you can still earn the lifetime learning credit of up to $2,000 per year for education expenses
  • 529 plans may now be used for K-12 expenses- plans can distribute up to $10,000 each year for tuition related to public or private education
  • The Obama administration’s health care penalty for those not enrolled in a health care plan has been eliminated

The Biggest Winners of the Tax Cuts & Jobs Act:  Businesses

There are two primary types of businesses:

  1. Corporations- C-Corps. These businesses pay corporate tax using the corporate tax brackets.  They pay dividends to their shareholders who are then taxed on their gains
  2. Pass Through entities: LLC’s, Sole Proprietors, S-Corps and Partnerships. In this business structure, the business does not pay taxes.  The profits of these businesses are “passed through” to the owner(s) whom are taxed on the individual tax bracket schedule.

Corporations “C-Corps”:

With the intent to create more jobs and keep American businesses from moving offshore, C-Corps will go from paying 35% to 21% in corporate taxes.  Truly the top win in the new bill, corporations are encouraged to deliver more jobs, keep their businesses on US soil and subsequently a greater overall tax base for this country. One set of beliefs is that this needed to be done to grow America; that doing business in America was costing many American businesses millions and in some cases, billions of dollars; vs heading overseas and employing foreign employees while paying substantially less in taxes.  The flip side argument is that it’s merely taking away entitlement programs and supplying the top 1% with a substantial boost in income and shareholder wealth.   The fact, which is what I present to my readers is from a historical perspective, growth in American business means growth to main street USA.  Growth in Main-street USA is undeniably critical to balance our economy.

2n Place Prize: Pass-Through Business Owners: pass-through businesses will receive a 20% deduction on their income.   So if you are Suzie Creamcheese LLC and you, after all of your legal business expenses, show a $100,000 profit to your business, you now get an additional 20% tax savings; taking your adjusted income to $80,000.00.  In addition, at $80,000 income are also saving an additional 3% on the newly introduced tax brackets.  If you’re a small business owner, I encourage you to click on the link below in addition to having a clear meeting with your accountant.  You should learn some of the particulars and restrictions as certain industries have limitations to this new law, it’s not a blanket 20% for all small business owners:

https://www.kiplinger.com/article/taxes/T049-C032-S014-small-business-owners-win-big-with-new-tax-law.html

Summary:

Overall we will be paying less in taxes.  This should in turn generate spending and the opportunity for businesses to employ more people, which historically equates to a stable economy.    These changes as it relates to the real estate and mortgage industries should end in:

  1. Increased prices on homes
  2. More inventory
  3. Higher interest rates

To my readers that are considering buying, my recommendation is to do it sooner than later.  For my sellers, know the market value of your home, contact me if you don’t know it and I will help you.  Your home is a tremendous asset and being informed always provides you with the knowledge you’ll need to make educated decisions.  Thank you very much for reading my blog; I hope you find value in my research.

2018 Real Estate Market Forecast

2018 Real Estate Market Forecast

2017 was certainly an interesting year! We had more buyers, and looser mortgage guidelines, qualifying more people for a home loan. We still maintained incredibly low interest rates with noisy politics and uncertainty contributing a great deal to that. As supply and demand would have it, we saw an increase in demand for home ownership but a shortage of supply as low inventory was the only thing holding the housing market back from a sure explosion. That led to home values increasing and a shift from a buyers- market; to a sellers- market.

 

 

So here we are its 2018 and we are seeing incredible economic growth. The Dow Jones Industrial average is soaring to record levels, unemployment rates are at a 17-year low and job growth predictions are all leading to signs of a very healthy America in 2018; from an economic perspective.

So what does all of this mean to you? Well it’s always important to know what is going on in the real estate market because if you are a home owner, you should always know the current market value of your home. If you are considering selling, you of course want to know how much cash you can get out of your sale. And if you’re looking to own a home, you want to know what the interest rates are, what they are projecting to be and what the inventory situation looks like to make better, more informed decision.

It’s expected that historically low interest rates, still baffling to even the most seasoned analysts, will gradually rise to an average of 4.5% percent over the next 12 months. Inventory is expected to increase, but moderately; making 2018 thus far, a sellers- market.

“This will be the first of many years to come in which it’s all about the millennial first-time homebuyer,” said Mark Flemming, chief economist at First American Financial Corp, a title insurance company. “ Find ways to appeal to those buyers, and it’s likely to be a successful year.”

Millennials, first time home buyers and self-employed individuals finally have access to options they really didn’t have after the mortgage meltdown. Let’s face it, most rentals today aren’t as desirable and they are more expensive as sellers of nicer properties have opted to “cash out” and sell once the market recovered. What I have recommended to interested buyers in our community is define where you are at financially and what your credit score is; then learn what products exist today that will get you qualified. For my sellers or potential sellers, get a free market analysis and know the market value of your home; you might be pleasantly surprised.

Groundhog Day 2018-Will Phil See His Shadow?

Groundhog Day is celebrated on Feb. 2 — when people all over the country focus on a small furry animal and whether it will predict an early spring or another six weeks of cold winter weather.
If PUNXSUTAWNEY Phil comes out of its burrow at sunrise and sees its shadow, winter will be around for 6 weeks longer. However, if the groundhog doesn’t see its shadow, spring weather is on its way!
If meteorologists are right, spring is on its way and may be covered in a dusting of snow this year. Since Pennsylvania’s first official celebration of Groundhog Day in Punxsutawney on 1886, the little guy has only seen his shadow 18 times.
Groundhog Day celebrations span centuries, with the earliest mentions of the unique holiday in the United States in the 1700s when German settlers arrived in Pennsylvania and brought the tradition of Candlemas Day. Those who celebrated Candlemas, an early Christian holiday where candles were blessed and distributed, decided that clear skies on the holiday meant a longer winter.
Initially, Germans used a hedgehog to predict when winter would end, but the animal was quickly replaced by the groundhog in Pennsylvania due to its bustling population and likeness to the European hedgehog.

Millennials, Meet Baby Boomers. Want To Swap?

Millennials, meet Baby Boomers.
Lucky for Millennials, their foray into home ownership coincides with the retirement of their parents’ generation, Baby Boomers.
Three-out-of-four individuals over the age of 65 are homeowners in California as of 2016, according to the U.S. Census. Most of these retirees will want to remain homeowners in retirement, minus the upkeep required by their suburban estates. Some will move out of state to low-cost areas like Arizona, Nevada and even Florida. Others will make the savvy decision to forego their suburban dwellings for low-maintenance condos closer to city centers and services — condos previously inhabited by Millennials, before they went looking for more space in the suburbs.
In some sense, retirees will simply swap housing with Millennials in what will be the Great Convergence. This demographic-fueled wave of home sales is expected to peak around 2020-2021.
Every part of the state is different. Continue to check my blog as I keep close track of housing data and forecast trends in the Bay Area.

Millennial Homebuyers Are Looking For More Space

Millennials are growing up and moving to the suburbs!

56% of young adults aged 25-39 say buying a home with plenty of space is important, according to a recent Zillow survey. Space is less important to older homebuyers, with just 42% of Generation-X respondents and 35% of Baby Boomers saying a large home was important in their home search.

Until recently, young adults were more interested in living near the high paying jobs and cultural amenities found in California’s urban centers. But this shift is perfectly sensible, as Millennials — also called Generation Y — are finally beginning to settle down and form families, which requires more space than allowed by the typical urban apartments and condominiums this generation is used to.

As more young adults enter the homebuying market, this trend is accelerating in California. This demographic had a rough start to homeownership. Many were just starting their careers when the 2008 recession and financial crisis hit. During the long recovery, Millennials saw their incomes stunted, unable to save up for down payments as previous generations had done. All the while, home prices and rents continued to accelerate as the recovery heated up.

In 2018, ten years out from the recession, this generation is finally making a showing in the housing market. But now that they’re ready to buy, they are faced with low inventory and high prices in California’s urban cores. They are finding that competition is less fierce, and space is more abundant, in the suburbs.

ADU’s – May Be the Solution for You

ADU’s – May Be the Solution for You

 

I’m always looking for ways to improve the lives of my friends & clients.  So, with that in mind, I want to share with you my recent

experience at a seminar presented by Gayler Design Build for ADU’s. What is an ADU?   An ADU or accessory dwelling unit is

a really simple and old Idea.  You may have heard them called in-law units or pool houses.  People are building ADU’s for many

reasons. With California’s growing housing prices and limited inventory, Bay Area homeowners are building ADU’s in their

backyard to rent out for extra income or to family members, such as their adult children or their aging parents. For

young couples who cannot afford buy in the bay area and don’t want to move out of state, this is a great option!  Another popular

trend we are seeing is empty nesters renting out their large houses and moving into ADU’s. This may be an old concept, but

these units by Gayler are contemporary, spacious, and gorgeous! Each ADU is designed and built to compliment the main house

and backyard. If you are outgrowing your current home and need more space, or if you have more space than you currently need,

an ADU may be a great option for you! Visit Gayler Design Build at gaylerdesignbuild.com so you can see yourself

If you are interested in learning more or you have questions regarding financing for these little gems please give a call.

 

A Fresh Start for Credit Challenged Borrowers

As of late I have been getting requests from borrowers that have experienced either a bankruptcy, foreclosure or short sale.   There really haven’t been great options…… Until now!
This new program is called Fresh Start.   The Fresh Start product is just that – it’s designed to help borrowers buy or refinance a home after a bankruptcy or foreclosure, but have since rebuilt their credit.

Here a few bullet points this product offers:

  • Loan amounts up to $1M
  • Minimum credit score 580
  • 100% gift for down
  • Higher Debt to Income Ratios
  • No seasoning requirement for BK, foreclosure, short sale
  • Purchase or rate & term
  • cash-out refinance with a max cash back of $350,000
  • No pre-payment penalties

Please call me or fill out your information under my Resources tab, and we can discuss your loan scenarios to learn more about this program and others designed to fit your needs.

Big News from Europe-Outlook Good for Rates & Pricing

Early action in Europe from the European Central Bank was good for bonds, which makes it good for pricing. The big news comes from Europe, as the ECB (European Central Bank) opted to keep its stimulus settings unchanged for now, and even left the door open for increasing bond purchases. There was concern heading into this meeting that the ECB might formally signal its intent to taper back the economic stimulus, which would have been bad for pricing. Instead, the ECB statement made it clear that it was ready to increase the program in size or duration if the outlook becomes less favorable.  Fed Deputy Chairman Stanley Fischer has come out and said he will step down in October, adding to uncertainty about leadership at the central bank as the end of Fed Chair Janet Yellen’s term approaches.  Not sure yet how this will affect the outlook of a Fed rate increase this year, but it will have no effect on the September’s Fed meeting.  So, the mid-to-longer term outlook remains good for rates and pricing, as it has for quite a while now.

Great Loan Program for Veteran Borrowers

VA loans are home mortgages backed by the Department of Veterans Affairs (VA). With a VA loan, eligible service members and veterans can buy a home with little or no down payment, or refinance an existing home to get cash out or a lower monthly payment.

As an approved lender for the VA Home Loan Guarantee Program, I can offer service members, veterans, and eligible surviving spouses favorable terms on all types of home mortgage products. In many cases, I can get vets 100% financing with no mortgage insurance. I recently helped a client a acquire a loan of over $1,000,000.00 with just 10% equity in his home. He will now be able to do some needed home improvements, and take his family on a dream vacation. He is one happy vet!

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