A New Tax Season
I hope your 2018 is off to a great start.
With a new year comes a new tax season and, this year, a new tax law, which went into effect on January 1. While the tax changes will not affect your 2017 filing, it is advisable to be aware of what is in store for next year. Hopefully, this letter will help you on that front as it relates to your real estate holdings/investments.
The number of income tax brackets remains the same, but they include lower tax rates. The new tax bill also eliminates or reduces several itemized deductions, including moving expenses except with military households, interest on home equity loans unless used for home improvements, and more.
Here are a few important real estate-related results of the new tax bill to keep in mind.
• Mortgage interest deductions are now limited to a combined $750,000 of debt for both primary residences and second homes for any loans taken out after Dec. 14, 2017. Current homeowners with loans made before that date, however, are grandfathered into the previous deduction, which allowed a combined debt limit up to $1 million.
• State and local tax deductions are now capped at a combined $10,000 – this includes state and local property, income and sales taxes. This will largely affect taxpayers in higher-tax states.
• Capital gains tax exclusions remain the same when you sell your house. Married couples filing jointly can still exclude up to $500,000 when selling their primary home, as long as they’ve lived there two of the past five years.
• Investment properties were largely unaffected by the new tax bill. As such, you will continue to enjoy the same financial benefits for any investment property you currently own or those you may buy in the future.
While the inventory shortage will likely continue through 2018, this is a great time to invest in real estate. Homes are appreciating, interest rates on mortgage loans are still around historical lows and there are tax advantages for property and business owners.
As always, if you have any real estate-related questions, please feel free to contact me. I look forward to helping you (and anyone you know) with your future real estate needs.
*The information contained in this letter is not intended to be and does not constitute financial or investment advice.
Home Buyer and Seller Generational Trends
Article From: 2017 National Association of REALTORS ®
Characteristics of Home Buyers
- First-time buyers made up 35 percent of all home buyers, an increase over last year’s near all-time low of 32 percent. Sixty-six percent of buyers 36 years and younger were first-time buyers, followed by buyers 37 to 51 years at 26 percent.
- At 34 percent, buyers 36 years and younger continue to be the largest generational group of home buyers with a median of 31 years old. Home buyers between the ages of 37 and 51 were reported to have the highest household incomes among any other generation at $106,600, followed by buyers between 51 and 60 that had an income at $93,800 (down from $100,200).
- Sixty-six percent of recent buyers were married couples, 17 percent were single females, seven percent were single males, and eight percent were unmarried couples. The highest percentage of single female home buyers was found in the 62 to 70 age group.
- Thirty-eight percent of all buyers had children under the age of 18 living at home.
- Sixty-two percent of buyers between 37 and 51 years had at least one child under the age of 18 residing in the home.
- Eleven percent of home buyers purchased a multi-generational home to take care of aging parents, for cost savings, and because children over the age of 18 are moving back. One in five home buyers aged 52 to 61 purchased a multi-generational home. Buyers 62 to 70 was the second largest share at 14 percent.
- The 37 to 51 age group showed to be the most racially diverse group of home buyers in 2016. Twenty-one percent of this group of home buyers identified as Hispanic/Latino, black/African American, or Asian/Pacific Islander
- The most common reasons for recently purchasing a home differed between the generations. For all three groups under the age of 61 years, the main reason for purchasing was the desire to own a home of their own. Among the 62 to 70 age group, the desire to be closer to friends and family and retirement were the top two reasons to purchase at 19 percent. Buyers between 71 and 91 years purchased their home to be closer to family and friends and for the desire for a smaller home at 23 percent.
Balanced Market Predicted in 2016
By Jeffrey S. Detwiler, President & COO, The Long & Foster Companies
This year has brought steady improvements in the real estate market. Prices rose driven by lower inventory in many markets, and consumers remained relatively optimistic about the economy and its direction—an encouraging indicator for real estate. While the long-anticipated increase in interest rates will likely occur in 2016, a number of positive signs point to a balanced market with benefits for both homebuyers and sellers in the next year. For example, an increased supply of inventory and slightly more transactions are expected in 2016. Home prices are forecasted to see modest improvements as well.
Interest rates remain low with housing still very affordable
Historically low interest rates have remained in place the past few years, adding to the affordability of homes. While the Federal Reserve has indicated that short-term interest rates will be raised as the economy improves, economists expect mortgage rates to rise minimally over the next year. Lawrence Yun, chief economist for the National Association of Realtors, for example, has said that he expects mortgage rates to stay under 5 percent for most of 2016. (1)
As an example, you’d pay $141.75 more per month on a $300,000 loan if the interest rate increased from 4.0 percent (the average for third quarter 2015) to 4.8 percent (the forecasted rate for fourth quarter of 2016). (2) Yet while higher interest rates will lead to higher monthly mortgage payments, many borrowers aren’t concerned about the increases unless rates pass the 6 percent threshold, according to a recent study by Trulia. (3)
First-time buyers on the rise
First-time buyers play a critical role in driving the real estate market forward, and 2016 is well positioned to see a rise in these first timers. While the current percentage of first-time buyers is below the historic average of about 40 percent, it is continuing to rise. Further, first-time buyers were estimated to have driven 45 percent of the growth in sales in the past year.(4) With rents continuing to climb in most housing markets and prices increasing, first-time buyers will be motivated to make the move in 2016. Additionally, while home prices have increased, financing costs remain low, making homeownership more appealing to first-time buyers.
Credit restrictions to loosen up
An obstacle for many would-be buyers earlier this decade was the difficulty of qualifying for a home loan or saving sufficient funds for a down payment and closing costs. Some new loan programs, though, allow buyers, particularly first-timers, to make a down payment as low as 3 percent of the purchase price. In addition, tweaks to lending standards are beginning to encourage lenders to be more lenient with borrowers. While good credit and a reasonable debt-to-income ratio are mandatory for a loan approval, borrowers may be surprised in the coming year to find that they can qualify for a mortgage more easily than in past years.
If you’ve made the decision to buy, sell or move up into your next home, Long & Foster Real Estate offers multiple services that can help you find, finance and insure your home. Representatives of Prosperity Home Mortgage are available in most Long & Foster offices to assist prospective buyers with financing. A professional Realtor can work with first-time buyers and more experienced buyers for a smooth transition. In addition, Long & Foster agents have a range of contractors they can recommend to provide home maintenance service to buyers and sellers before and after they buy a home.
About the Author
Jeffrey S. Detwiler is president and chief operating officer of The Long & Foster Companies, parent company to Long & Foster Real Estate, the No. 1 family-owned real estate company in the United States, and Prosperity Home Mortgage, LLC, a full-service mortgage banker. From extensive, neighborhood-level market information to Long & Foster’s core services companies, providing mortgage, settlement, insurance and property management services in a streamlined manner, Long & Foster offers the services necessary to make today’s real estate transactions manageable for owners and investors.