Could ROTH IRAs Have An Impact On Future Taxable Income? 

 

 

Written by Edward Brown Posted On Friday, 28 April 2023 00:00

Back in the early 1980s, when I was preparing tax returns, I made a prediction that everyone I shared with thought I was out of my mind; I predicted that the government was going to tax Social Security in the future. The objection from my naysayers was that the income was already taxed, so it would not be fair to tax it again.

My reasoning was that the government is always looking for ways to raise revenue, and it tries to do it in very sly ways. Unfortunately, I was right. First, Congress decided to have as much as half of a recipient’s Social Security be subjected to taxation; then, it was decided that up to 85% of Social Security could be subjected to tax, depending on the taxpayer’s adjusted gross income. This is not the first time Congress has done this “end run” on taxing certain income. In the “old days”, prior to the 1980s, the Alternative Minimum Tax was designed to only tax those wealthy taxpayers who could afford tax shelters and other tax avoidance schemes. However, years later, many people were subjected to this, somewhat hidden, tax as they had no idea they were being thrust into it. Certain expenses such as State Income tax deductions were added back into income and taxpayers found themselves paying more when they filed their income tax return than they expected. Worse, it was difficult to avoid this tax that was supposed to be imposed on “the wealthy” but was now subjecting middle class taxpayers.

Next, Congress decided that Municipal Bonds could potentially cause a taxpayer to pay higher taxes [on their Social Security] than they normally would by owning Municipal Bonds, depending on adjusted gross income. So, although the owner of Municipal Bonds does not pay tax on the interest earned on those bonds, the taxpayer may end up paying more taxes on other income because of the Municipal Bond income.

My predictions for the future are: first, ALL Social Security income received will be taxed. Next, since the system cannot accommodate all the Baby Boomers who are either currently receiving Social Security or are about to, the current threshold of income that is subjected to FICA from current workers will increase. Next, the retirement age at which someone can receive Social Security will increase, as they have recently proposed in France. Then, there will be a means test. If one does not “need” Social Security [by having too high a net worth or other income as determined by Congress], the potential recipient will not receive it. 

Next up on my list of predictions has to do with ROTH IRAs. For some time, many taxpayers have had the option of having a ROTH IRA instead of a traditional IRA. The plan was to pay taxes now and get it over with. The ROTH IRA would be allowed to grow without taxation as well as when the recipient withdrew money from the ROTH IRA [no penalties if the owner is over 59 ½]; however, ROTH IRAs have grown tremendously in recent years, as many taxpayers believed tax rates would increase and the thought was to pay the taxes when tax rates were less. With ROTH IRAs becoming a large part of “tax-free” growth, it is my belief that Congress will not just outright start taxing them, as this would fly in the face of what was originally proposed. The way that Congress will effectively get their tax revenue is to do what they did with Municipal Bonds as explained earlier; ROTH IRA income [possibly even the value of the assets in the ROTH IRA] may influence the taxability of other income. This would be a sly way of not directly taxing ROTH IRAs but be structured in such a way for the government to collect more taxes. This same strategy may also be applied to other deferred income that is not currently being taxed such as single premium life insurance, whole and universal life insurance and some annuities. 

I am not against ROTH IRAs, but my predictions have led me to believe that it is best to save taxes now [traditional IRAs, 401(k)s, etc.] wherein the taxpayer saves money immediately, knowing there is a 100% chance of no current tax. In addition, the taxes that are not currently paid can be invested and increase the taxpayer’s net worth. As the saying goes, A Bird in the Hand…

 

 

What Lies Ahead For Real Estate And The Lending Market In The Coming Months 

 

 

Written by Edward Brown Posted On Wednesday, 26 April 2023 00:00

Many fear a recession looming in the coming months that will negatively affect real estate prices. In a typical recession, house prices usually drop. According to the Joint Center for Housing Studies at Harvard University, housing prices dropped in four out of five recessions that have occurred since 1980. During those recessions, house prices dipped on average about 5% for each year the economy remained down; However, in the Great Recession in 2008, the average price dropped by nearly 13%.

During the recession of 1980, inflation started to skyrocket, much like we have been experiencing in this past 12 months. However, there are vast differences between the recession of 1980 and the possible one to come. First, the population in the United States in 1980 was just over 226.5 million people. Today, there are over 333 million people according to the US Census Bureau. Everybody needs a place to live, and supply has not kept up with demand. Many cities have dissuaded builders by imposing large fees as well as taking too long to issue permits. This could be due to downsizing of government staff, but another phenomenon that was not as prevalent in 1980 as compared to today is that neighbors have a lot more say in what goes in their neighborhood. When there are too many roadblocks, many builders shift to fix and flip. In addition, there is still a large supply chain issue left over from Covid. Also, costs of materials and labor has substantially increased. Lastly, finding qualified trade workers has been quite a challenge for builders.

One of the major differences in the early 1980s as compared to today is the interest rate on mortgages. By 1981, mortgage rates were as high as 19%. Although current rates at 6% seem incredibly high [since they bottomed out in the 2+% range during Covid], they are still less than a third of what they were in 1981. It is true that house prices have substantially increased since 1981, but so have wages. 

Some factors that affect the demand side of home purchases are that millennials are coming into the market in droves. These same millennials witnessed their parents’ difficulties during the Great Recession, but enough time has passed, and millennials are now in positions of starting families as well as becoming a strong impact in the workforce. Probably one of the most overlooked area of why demand should at least come close to supply [to keep residential real estate prices relatively stable] is that there were millions of homeowners who refinanced when rates were very low. These homeowners will not be able to replace their current mortgage rate for the foreseeable future. Thus, there has to be a compelling reason for these people to sell their house. Currently, the Fed is trying to tame inflation by raising interest rates. This has started to work, albeit slow and not strong enough. Anyone buying groceries will say that true inflation is closer to 15% rather than the 6% the government is touting. Raising the interest rates usually causes a recession, as costs of production are impacted. If a recession then causes interest rates to decline [due to lack of demand and falling inflation], we may see the refinance market pick up again and more mobility of home buyers driving up demand again. So far, there has been a slowdown in sales volume. This, in combination with slower refinances, has caused many mortgage companies to lay off workers. For the private lending industry, this should cause volume to move in their direction. Private lending use to be the last resort for many borrowers, as the costs were higher for these borrowers; however, with the smaller pool of lenders due to the layoffs as well as mainstream banks making it harder for borrowers to qualify due to the uncertainty of the economy, private lenders have moved up the chain with regard to the choice of lenders for those needing to borrow. In addition, we may likely see more bank regulations due to the downfall of Silicon Valley Bank and Signature Bank. The Fed wants to exude stability in the market, so they will probably clamp down on what banks are allowed to lend on as we saw the Great Recession produce new regulations via Dodd-Frank.

There may be a drop in real estate prices over the coming months, but it most likely will not be what we saw in the Great Recession, as that was a credit issue, where the banks were too lax in giving loans to borrowers who may not have had the income to repay. Current regulations make lending much stricter, so borrowers have to show the ability to repay the loan. Thus, even a coming recession should not see a tremendous drop in real estate prices.

 

Redfin Report: Buyers Can’t Buy if Sellers Won’t Sell 

 

 

Written by Redfin Posted On Sunday, 16 April 2023 06:36

New listings of homes for sale are down 25% from a year ago, making it difficult for buyers to find homes but giving some sellers a competitive edge

New listings of U.S. homes for sale dropped 25% from a year earlier during the four weeks ending April 9, continuing an eight-month streak of double-digit declines, according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage.

That’s the biggest drop since the start of the pandemic, but there was a holiday weekend effect: Easter fell a week earlier this year than last year, making the new-listings decline larger than it would have been if Easter had fallen during last year’s comparison period.

People are reluctant to sell because they don’t want to give up their low mortgage rate and it’s hard to find another home to buy. Although rates are down from their November peak, this week’s average is 6.27%; 85% of homeowners have a rate far below 6%. The bright side for homeowners who are listing now is that desirable, well-priced homes are being snapped up in bidding wars in markets where demand outpaces supply.

New listings fell from a year earlier in all 50 of the most populous U.S. metros, with the biggest declines in California. They dropped most in Sacramento and Oakland (-47% YoY apiece), San Francisco (-43.2%), San Jose (-42.9%) and San Diego (-41.4%). The scarcity of homes hitting the market, along with elevated mortgage rates, is holding back sales. Pending home sales dropped more than 30% in each of those metros, more than the 19% nationwide decline.

While pending sales are down, early-stage homebuying demand is ticking up, with mortgage-purchase applications up 8% from a week earlier, seasonally adjusted.

Angela Langone, a Redfin agent in San Jose, said there aren’t enough listings to go around, with multiple offers on many homes. Both new listings and pending sales are down more than 40% from a year ago in San Jose.

“Many buyers here aren’t held back by high mortgage rates; it’s the lack of inventory that’s really getting in their way,” Langone said. “I have several clients who are serious about buying a home and they’re actively looking, but they can’t find anything right now and they’re waiting for more homes to trickle onto the market.”

Buyers have more options in other parts of the country. In Nashville, TN, for instance, new listings and pending sales were both down about 14% from a year earlier—but those are some of the smallest drops in the country.

“Inventory isn't a major problem here because the greater Nashville area is so sprawling, and there are a lot of newly built homes on the market in the suburbs,” said Nashville Redfin agent Jennifer Bowers. “Builders went big in the outskirts of the city over the last few years and now they're offering incentives to attract buyers, to the point where individual sellers are having a hard time competing. For buyers willing to stray from the city center, there are plenty of homes for sale.”

Two new pieces of economic data serve as tea leaves to anticipate how mortgage rates will trend over the next few months: It’s unlikely they’ll skyrocket, but it’s also unlikely they’ll come down enough to motivate locked-in homeowners to sell. The March consumer-price index and jobs report showed that inflation continued to cool and wage growth ticked down from the month before, but inflation is still higher than the Fed’s target.

“The Fed has made some progress cooling inflation with rate hikes but there’s still work to be done,” said Redfin Chief Economist Daryl Fairweather. “Even if the Fed chooses not to hike interest rates next month, which would likely bring down mortgage rates, the limited supply of homes for sale would remain a major obstacle for would-be buyers. Rates dipping below 6% would probably pique the interest of more buyers, but enough homeowners have rates in the 3% or 4% range that we’re unlikely to see a big uptick in new listings.”

Home Prices Falling in More Than Half of the U.S.

The median U.S. home-sale price fell 2.3% year over year to roughly $364,000, the biggest decline in more than a decade.

Prices fell significantly more than that in some metros, but rose in others. Home-sale prices dropped in more than half (29) of the 50 most populous U.S. metros, with the biggest drop in Austin, TX (-13.9% YoY). Next come four West Coast metros: Oakland (-11.4%), San Francisco (-10.9%), Seattle (-10.9%) and Sacramento (-10.6%). That’s the biggest annual decline since at least 2015 for Seattle.

On the other end of the spectrum, sale prices increased most in Fort Lauderdale, FL, where they rose 11.6% year over year. Next come Milwaukee (9.5%), Miami (8.5%), Cincinnati (7.3%) and Providence, RI (7.2%).

Leading indicators of homebuying activity:

• For the week ending April 13, average 30-year fixed mortgage rates dropped to 6.27%, the fifth straight week of declines, though it only ticked down slightly from the week before. The daily average was 6.42% on April 12.
• Mortgage-purchase applications during the week ending April 7 increased 8% from a week earlier, seasonally adjusted. Purchase applications were down 31% from a year earlier.
• The seasonally adjusted Redfin Homebuyer Demand Index—a measure of request for home tours and other homebuying services from Redfin agents—dropped slightly from the 10-month high hit a week earlier during the week ending April 9. It was up 6% from a month earlier, but down 21% from a year earlier.
• Google searches for “homes for sale” were up about 40% from the trough they hit in November during the week ending April 8, but down about 18% from a year earlier.
• Touring activity as of April 8 was up about 13% from the start of the year, compared with a 26% increase at the same time last year, according to home tour technology company ShowingTime.

Key housing market takeaways for 400+ U.S. metro areas:

Unless otherwise noted, this data covers the four-week period ending April 9. Redfin’s weekly housing market data goes back through 2015.

• The median home sale price was $364,366, down 2.3% from a year earlier, the biggest decline in more than a decade and the seventh week in a row of prices declining annually after more than a decade of increases. The latter is according to Redfin’s monthly dataset, which goes back through 2012.
• The median asking price of newly listed homes was $391,200, essentially flat (up 0.1%) year over year. That’s the smallest increase since May 2020.
• The monthly mortgage payment on the median-asking-price home was $2,502 at a 6.27% mortgage rate, the current weekly average. Monthly mortgage payments are down slightly from the peak they reached last month, but up 11% ($255) from a year ago.
• Pending home sales were down 18.8% year over year, the biggest decline in more than two months.
• Pending home sales fell in all 50 of the most populous U.S. metros. They declined most in Las Vegas (-45.7% YoY), followed by four West Coast metros: San Jose, CA (-42.9%), Seattle (-42.4%), Portland, OR (-41.9%) and Oakland, CA (-41.1%).
• New listings of homes for sale fell 25.4% year over year, the biggest decline since May 2020. If not for Easter falling on April 9, the decline likely would have been in line with the prior four-week period’s 22% drop.
• New listings declined in all 50 of the most populous U.S. metros. They declined the least in Texas: Fort Worth (-7.6% YoY) saw the smallest drop, followed by Austin (-11.1%), Dallas (-11.6%), Nashville (-13.5%) and Houston (-13.9%).
• Active listings (the number of homes listed for sale at any point during the period) were up 10.4% from a year earlier, the smallest increase in more than five months. The total number of homes for sale posted an unseasonal early-spring decline.
• Months of supply—a measure of the balance between supply and demand, calculated by the number of months it would take for the current inventory to sell at the current sales pace—was 2.8 months, down from 3.2 months a month earlier and up from 1.9 months a year earlier. Four to five months of supply is considered balanced, with a lower number indicating seller’s market conditions.
• 47% of homes that went under contract had an accepted offer within the first two weeks on the market, the highest level since June, but down from 53% a year earlier.
• Homes that sold were on the market for a median of 37 days, the shortest span since November. That’s up from 22 days a year earlier and the record low of 18 days set in May.
• 28% of homes sold above their final list price, the highest share in more than three months but down from 51% a year earlier.
• On average, 4.9% of homes for sale each week had a price drop, up from 2.3% a year earlier.
• The average sale-to-list price ratio, which measures how close homes are selling to their final asking prices, was 98.9%, the highest level in nearly six months but down from 102.1% a year earlier.

To view the full report, including charts, please visit: https://www.redfin.com/news/housing-market-update-new-listings-home-prices-fall

 

 

 

Redfin Report: Rents Post First Annual Decline in Three Years

 

 

Written by Redfin Posted On Friday, 14 April 2023 06:09

The median asking rent fell 0.4% in March to the lowest level in 13 months. Austin and Chicago saw the largest declines, while Raleigh and Cleveland experienced the biggest gains.

The median U.S. asking rent fell 0.4% year over year to $1,937 in March—the first annual decline since March 2020 and the lowest median asking rent in 13 months, according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage. By comparison, rents were up 17.5% one year earlier, in March 2022.

The median asking rent in March was unchanged from February. It remained $322 higher (19.9%) than it was at the onset of the pandemic three years earlier, though wages increased at roughly the same pace during this time.

“Rents are falling, but it feels more like they’re just returning to normal, which is healthy to some degree,” said Dan Close, a Redfin real estate agent in Chicago, where the median asking rent in March was 9.2% lower than it was a year earlier. “It’s similar to the cost of eggs. You can say egg prices are plummeting, but what’s really happening is they’re finally making their way back to the $3 norm instead of $5 or $6. Rents ballooned during the pandemic, and are now returning to earth.”

Rents surged during the past two years because incomes increased and household formation rose as more millennials started families. But household formation is now slowing, partly because many people are opting to stay put rather than move during a time of economic uncertainty.

Rents Drop Due to Supply Glut, Inflation, Economic Uncertainty

Rents declined from a year earlier in March largely due to a surplus of supply resulting from the pandemic homebuilding boom. The number of multifamily units that went under construction and the number completed each rose to the second highest level in more than three decades in February, the latest month for which data is available. Completed residential projects in buildings with five or more units jumped 72% year over year on a seasonally-adjusted basis to 509,000, the highest level since 1987 with the exception of February 2019. Started projects in buildings with five or more units rose 14.3% to 608,000, the highest level since 1986 with the exception of April 2022.

The short-term rental market is in a similar situation. The Airbnb market is oversaturated with supply and authorities are imposing tougher restrictions on hosts in some areas, driving some owners to lower rents or sell, according to Redfin agents.

The overall rental market is also cooling because still-high rental costs, inflation, rising unemployment and recession fears are causing rental demand to ease. Rental vacancies are on the rise, prompting some landlords to cut rents and/or offer concessions like discounted parking.

Rents Declined in 13 Major U.S. Metro Areas

1. Austin, TX (-11%)
2. Chicago, IL (-9.2%)
3. New Orleans, LA (-3%)
4. Birmingham, AL (-2.9%)
5. Cincinnati, OH (-2.9%)
6. Sacramento, CA (-2.8%)
7. Las Vegas, NV (-2.4%)
8. Atlanta, GA (-2.3%)
9. Phoenix, AZ (-2.1%)
10. Baltimore, MD (-2%)
11. Minneapolis, MN (-1.6%)
12. Houston, TX (-1.5%)
13. San Antonio, TX (-1.3%)

“A lot of people in Chicago became landlords during the pandemic,” Close said. “Some were looking to cash in on soaring rents. Some rented out their homes because selling would’ve meant giving up their rock-bottom mortgage rate. Others tried to sell but didn’t get a satisfactory offer due to slowing homebuyer demand. Now we have a lot of rental supply, which is bringing prices down because renters have more options.”

Raleigh, Cleveland Saw Largest Rent Increases

1. Raleigh, NC (16.6%)
2. Cleveland, OH (15.3%)
3. Charlotte, NC (13%)
4. Indianapolis, IN (10.5%)
5. Nashville, TN (9.6%)
6. Columbus, OH (9.4%)
7. Kansas City, MO (8.1%)
8. Riverside, CA (7.2%)
9. Denver, CO (7%)
10. St. Louis, MO (4.2%)

Three factors have driven up rents in Nashville, according to local Redfin real estate agent Jennifer Bowers: investors, high home prices and a strong local job market.

“Tons of investors bought homes in Nashville and turned them into rentals during the pandemic in order to take advantage of low mortgage rates and rising rental demand—which allowed them to jack up rents. While investors have since pumped the brakes on purchases, they haven’t cut rents,” Bowers said. “Demand for rentals rose in part because skyrocketing housing prices pushed homeownership out of reach for many families. Elevated mortgage rates over the last year-and-a-half have also priced buyers out.”

The average 30-year-fixed mortgage rate is now 6.27%, down from a fall peak of 7.08%, but up from 5% in April 2022, which has sent the typical homebuyer’s monthly payment up by nearly $300 from a year ago. While home prices have started falling on a year-over-year basis, they remain more than 30% higher than they were when the pandemic started.

To view the full report, including charts, full metro-level breakouts and methodology, please visit: https://www.redfin.com/news/redfin-rental-report-march-2023

 

How’s the Spring Housing Market Expected to Look? 

 

 

Written by Ashley Sutphin Posted On Monday, 10 April 2023 00:00

According to the calendar, we’re officially already in spring, meaning it should be the busiest time in real estate. 2023 isn’t shaping up to be a typical year, however, so what does that mean for the housing market?

Below, we take a look at some of the things most impactful in the housing and real estate market right now and what agents, buyers, and sellers alike should all know as we emerge from the cold winter and move towards warmer weather.

Home Prices

According to most analysts, the real estate market is in a period of correction, but the National Association of Realtors said the sales of existing homes went up 14.5% in February. That was the first increase in 12 months. It was also the biggest increase since 2020.

The median home price in February was hovering around $363,000, which was a 0.2% drop from February of last year. That was the first year-over-year decline in home prices in over a decade.

As far as mortgages, interest rates are still high, especially compared to a couple of years ago. While they’ve been fluctuating, especially with the Silicon Valley Bank collapse, they’re still around 7% for the 30-year fixed-rate mortgage.

So far, the Fed did nine interest rate hikes from a year ago, and they’re indicating more on the horizon.

With mortgage rates between 6.5% and 7%, mortgage payments are as much as 50% higher than they would have been for the same house a year ago. That’s leaving many with the impression the spring won’t be as active as normal.

Inventory

The housing market is in a unique phase right now. While the prices are declining in some parts of the country, and interest rates are high, home prices continue to rise in other places. A lot of this divergence in the housing market depends on inventory. Inventory has been limited for years, and that’s likely the biggest reason the market hasn’t experienced a widespread crash like in 2007 and 2008.

Many analysts and real estate experts expect the spring will see stability in home values, but more inventory might slowly hit the market.

Because of the issues in the banking system, the interest rates might tick down a little this spring, which could lead to a more competitive market.

With that being said, analysts are closely watching how different the markets are depending on where you are in the country. Local markets are seeing huge discrepancies between one another. For example, in cities like Phoenix, Las Vegas, Austin, and San Francisco, there are likely to be double-digit declines in prices. Then, there may be price increases in places with a lot of job growth and an influx of new residents, like Florida and North Carolina.

Will There Be a Crash This Spring?

We’ve all been having will-it-won’t-it conversations about a potential housing market crash for at least the better part of a year, but most experts say that a crash isn’t likely this spring.

Fifteen years ago, when there was a crash, the conditions were a lot different than they are now. Along with limited inventory, something else that’s different currently are the stricter lending and borrowing standards that have been in place since then.

There’s likely to be more of a continued correction than a crash, based on what we know right now, and a lot of that, again, will be very dependent on local conditions versus national ones. Of course, no one can know for sure, but we know that unemployment is also low, along with the strict underwriting guidelines.

For real estate agents, buyers, and sellers, the spring of 2023 does hold opportunities but also some challenges. 

 

 

 

Cities Where People Pay the Lowest, Highest Property Taxes [New LendingTree Study] 

 

 

Written by Lending Tree Posted On Friday, 07 April 2023 06:33

With the federal income tax filing deadline quickly approaching, taxes are on many people’s minds. LendingTree wanted to mark the occasion by looking at a tax all too familiar to homeowners: property taxes.

How much you pay in property taxes — also called real estate taxes — varies significantly and can be influenced based on the home’s worth and location, among other factors. To illustrate the variances in people’s property taxes, LendingTree analyzed data on the median amount paid annually in each of the nation’s 50 largest metros. Here's what we found.

• Birmingham, Ala., is the only metro where median property taxes are less than $1,000 a year. The next two metros with the lowest median real estate taxes — New Orleans and Memphis, Tenn. — owed $1,506 and $1,672 a year, respectively. 
• New York, San Jose, Calif., and San Francisco are the metros where homeowners pay the most in property taxes. The median amount paid is $9,091 in New York, $8,858 in San Jose and $7,335 in San Francisco.
• Since 2019, median property taxes have increased in each of the nation’s 50 largest metros. Property taxes increased the most in Tampa, Fla., where the median amount paid increased by 18.0% from 2019 to 2021. In Hartford, Conn., the increase was the smallest at 1.1%. 
• Median property taxes on homes without a mortgage are $692 less expensive, on average than on homes with mortgages. 

You can check out our full report here: https://www.lendingtree.com/home/mortgage/real-estate-taxes-in-metropolitan-areas/

LendingTree's Senior Economist and report author, Jacob Channel, had this to say:

"Remember that if you’re overburdened by property taxes, or just think that you’re paying too much, you can challenge your assessment. While this doesn’t guarantee that your bill will go down, it can help shed some light on why the government is saying you owe what you do. And, in the best case scenario, you could end up paying less in taxes.” 

Key findings

• Property taxes can vary significantly across the nation’s 50 largest metros. For example, annual median property taxes in Birmingham, Ala. — where homeowners pay the least in real estate taxes — are $8,096 cheaper than in the New York metro, where they’re the highest.
• Birmingham, Ala., is the only metro where median property taxes are less than $1,000 a year. The median amount of property taxes paid by homeowners in Birmingham is just shy of that total at $995. For comparison, residents in the next two metros with the lowest median real estate taxes — New Orleans and Memphis, Tenn. — owed $1,506 and $1,672 a year, respectively. Seven of the 10 metros with the lowest property taxes are in the South.
• New York, San Jose, Calif., and San Francisco are the metros where homeowners pay the most in property taxes. Unsurprisingly, residents in these metros known for their expensive real estate shell out a lot of money in property taxes each year. The median amount paid is $9,091 in New York, $8,858 in San Jose and $7,335 in San Francisco.
• Since 2019, median property taxes have increased in each of the nation’s 50 largest metros. Property taxes increased the most in Tampa, Fla., where the median amount paid increased by 18.0% from 2019 to 2021. In Hartford, Conn., the increase was the smallest at 1.1%. Remember that real estate taxes can vary significantly by person, meaning that some people’s property taxes may have increased by considerably more or less than their area’s overall rate.
• Median property taxes on homes without a mortgage are $692 less expensive, on average, than on homes with mortgages. There are various reasons, ranging from home values tending to be less expensive on homes without a mortgage to some states having tax exemptions or reductions for older homeowners who may be more likely to own their home outright. Salt Lake City, Seattle, Portland, Ore., Boston, Virginia Beach, Va., and Nashville, Tenn. — the six metros where median property taxes are slightly higher for homes without a mortgage — illustrate there are exceptions.

Metros with the lowest property taxes

No. 1: Birmingham, Ala.

• Median property taxes paid — all homes: $995
• Median property taxes paid — homes with a mortgage: $1,152
• Median property taxes paid — homes without a mortgage: $774
• Percentage increase in median property taxes paid on all homes from 2019 to 2021: 6.2%

No. 2: New Orleans

• Median property taxes paid — all homes: $1,506
• Median property taxes paid — homes with a mortgage: $1,733
• Median property taxes paid — homes without a mortgage: $1,174
• Percentage increase in median property taxes paid on all homes from 2019 to 2021: 12.1%

No. 3: Memphis, Tenn.

• Median property taxes paid — all homes: $1,672
• Median property taxes paid — homes with a mortgage: $1,810
• Median property taxes paid — homes without a mortgage: $1,372
• Percentage increase in median property taxes paid on all homes from 2019 to 2021: 3.5%

Key findings

• Property taxes can vary significantly across the nation’s 50 largest metros. For example, annual median property taxes in Birmingham, Ala. — where homeowners pay the least in real estate taxes — are $8,096 cheaper than in the New York metro, where they’re the highest.
• Birmingham, Ala., is the only metro where median property taxes are less than $1,000 a year. The median amount of property taxes paid by homeowners in Birmingham is just shy of that total at $995. For comparison, residents in the next two metros with the lowest median real estate taxes — New Orleans and Memphis, Tenn. — owed $1,506 and $1,672 a year, respectively. Seven of the 10 metros with the lowest property taxes are in the South.
• New York, San Jose, Calif., and San Francisco are the metros where homeowners pay the most in property taxes. Unsurprisingly, residents in these metros known for their expensive real estate shell out a lot of money in property taxes each year. The median amount paid is $9,091 in New York, $8,858 in San Jose and $7,335 in San Francisco.
• Since 2019, median property taxes have increased in each of the nation’s 50 largest metros. Property taxes increased the most in Tampa, Fla., where the median amount paid increased by 18.0% from 2019 to 2021. In Hartford, Conn., the increase was the smallest at 1.1%. Remember that real estate taxes can vary significantly by person, meaning that some people’s property taxes may have increased by considerably more or less than their area’s overall rate.
• Median property taxes on homes without a mortgage are $692 less expensive, on average, than on homes with mortgages. There are various reasons, ranging from home values tending to be less expensive on homes without a mortgage to some states having tax exemptions or reductions for older homeowners who may be more likely to own their home outright. Salt Lake City, Seattle, Portland, Ore., Boston, Virginia Beach, Va., and Nashville, Tenn. — the six metros where median property taxes are slightly higher for homes without a mortgage — illustrate there are exceptions.

Metros with the highest property taxes

No. 1: New York

• Median property taxes paid — all homes: $9,091
• Median property taxes paid — homes with a mortgage: $9,342
• Median property taxes paid — homes without a mortgage: $8,669
• Percentage increase in median property taxes paid on all homes from 2019 to 2021: 4.6%

 

No. 2: San Jose, Calif.

• Median property taxes paid — all homes: $8,858
• Median property taxes paid — homes with a mortgage: $10,000
• Median property taxes paid — homes without a mortgage: $5,816
• Percentage increase in median property taxes paid on all homes from 2019 to 2021: 14.2%

No. 3: San Francisco

• Median property taxes paid — all homes: $7,335
• Median property taxes paid — homes with a mortgage: $8,422
• Median property taxes paid — homes without a mortgage: $5,278
• Percentage increase in median property taxes paid on all homes from 2019 to 2021: 8.2%

Property taxes can be a pain, but they’re often worth it

Though paying property taxes isn’t fun, one of the nice things about them is it can be easy to see their impact. Property taxes are often reinvested directly into the communities from which they came.

Real estate taxes are generally used to pay for things people and their families frequently use, like roads, schools and emergency response services — including fire departments.

While it can be easy to take these kinds of public services and infrastructures for granted, maintaining them isn’t cheap. Without the taxes to support them, many things in our communities would likely become unusable for the majority of people — or outright disappear. It’s for this reason that paying property taxes is important.

Important: If you decide not to pay your property taxes, you could lose your home or be jailed (in extreme circumstances). Even if you’re not a fan of public schools, fire departments and roads, you still have plenty of incentives to pay your taxes.

Tax tips for homeowners

Though you can potentially deduct various home-related costs on your federal tax return — such as property taxes and mortgage interest — you’ll need to itemize your return to do so. Consider the following tax tips to help you determine whether itemization is worth it for you.

• To make itemizing a tax return worth it, a person’s deductible expenses must be higher than their standard deduction. For the 2022 tax year (that is, taxes to be filed in 2023), the standard deduction amount is $12,950 for single taxpayers and married taxpayers filing separately, $19,400 for heads of households and $25,900 for married taxpayers filing jointly.
• There are limits to how much people can deduct for state and local property taxes. The total amount that can be deducted for all state and local taxes, including property taxes, is $10,000 — or $5,000 for married taxpayers filing separately.
• Your first mortgage may not be the only thing you can get a tax deduction on. If you used a home equity loan or home equity line of credit (HELOC) to buy or substantially modify a property on which the loan is secured, you could potentially deduct the interest paid on those loans from your taxes. Specifically, if you incurred your debt after Dec. 15, 2017, you can deduct interest on up to $750,000 worth of your total mortgage debt (from both first and second mortgages). If you incurred your debt before Dec. 16, 2017, you can deduct mortgage interest from up to $1 million worth of your total mortgage debt.

Methodology

LendingTree analyzed data from the U.S. Census Bureau 2021 American Community Survey with one-year estimates — the latest survey available at the time of writing — to determine median property tax amounts for homes in the nation’s 50 largest metropolitan statistical areas (“MSAs”).

The Census Bureau uses the term “real estate tax” to define a tax charged on an “entire property (land and buildings) payable to all taxing jurisdictions, including special assessments, school taxes, county taxes and so forth.”

Real estate taxes are often referred to as property taxes. The terms are used interchangeably in this study.

 

 

Should You Refinance From An FHA Loan To A Conventional Loan?

 

 

Written by Jaymi Naciri Posted On Friday, 07 April 2023 00:00

• 

For many first-time buyers, a Federal Housing Administration (FHA) loan is the prudent—and often the only—choice for a mortgage. With the flexible credit and low down payment requirements, an FHA loan makes it easier to qualify than almost any loan out there.  

However, the ongoing private mortgage insurance (PMI) you have to pay when you have an FHA loan makes your monthly payments more expensive. And, unlike a conventional loan, which allows you to remove your PMI at a certain point, you can never get rid of it with an FHA loan—even when you have tons of equity in your home. So, with rates at historic lows, should you refi out of your FHA loan to a conventional loan? We’re looking at the pros and cons.

Pro: You can get rid of private mortgage insurance (PMI)

“FHA loans require certain provisions which sometimes place a heavy burden on a homeowner’s budget, often in the form of premiums paid for mortgage insurance,” said PennyMac. 

That mortgage insurance on an FHA loan ranges from .45–1.05% of your home loan amount every year. On a $285,000 home, “families could be spending more like $3,420 per year on the insurance,” said Investopedia. “That’s as much as a small car payment!”

That money is literally insurance for the lender in case you default on your loan. And, unfortunately, they continue to collect that insurance regardless of how far you pay down your mortgage balance or how much your home appreciates. 

“To stop paying PMI on an FHA loan you will need to refinance into a conventional mortgage,” said The Lenders Network. 

The solution: refinance to a conventional loan. Assuming you have enough equity in your home, you won’t have to pay mortgage insurance on the new loan. Combined with a lower rate, your monthly payment will drop. “If you have paid down the loan to 78% of the value of the home you can refinance into a conventional mortgage without having to pay PMI.”

Pro: Mortgage insurance for conventional loans may be less expensive

If you refi to a conventional loan and still have to pay mortgage insurance because you don’t yet have enough equity in your home, you may be able to benefit from the lower payments. 

“The mortgage insurance fee on a conventional loan is lower than it is with FHA. FHA MIP rates are 0.80% – 1.00%,” said The Lenders Network. “Many conventional mortgages have an annual PMI fee of 0.50%. On a $200,000 home that is savings of almost $80 per month. While it is not a huge savings, the PMI will drop off once the LTV reaches 78%. After dropping PMI, the savings is almost $2,000 per year. You can generally refinance out of FHA into a conventional mortgage after 6 months.”

Cons

With any refi, you’re going to pay closing costs. When you’re refinancing out of an FHA loan into a conventional loan, you can count on those costs ranging from about 1.5% to as much as 3%. So, on a $300,000 mortgage, you’re looking at about $9,000. There may be a few out-of-pocket costs involved in the process; Typically, you’ll be responsible for paying for an appraisal. The rest of the closing costs will come from your equity. 

When you’re trying to decide whether or not to refinance, look at the cost to you, and determine how long it will take to recoup the money with your lower payment. If you won’t break even for seven years and you’re planning on moving in three, perhaps it’s time to reconsider whether you should refinance at all. 

Is a Bigger Down Payment Always Better? 

 

 

Written by Ashley Sutphin Posted On Tuesday, 04 April 2023 00:00

When you’re buying something major with a loan, namely a house, you likely need a down payment. A down payment covers part of the purchase price.

Your down payment plays a role in whether you are approved for a mortgage at all. Down payments also impact your interest rate and the borrowing costs throughout the life of your loan.

Your down payment usually comes from your savings. The down payment should be a percentage of the total purchase price, and then you pay off the rest of the loan by making installment payments.

If you’re buying a house for $200,000 and want to make a 20% down payment, it’s $40,000. You would pay that when you close on your home loan. Then, you’re actually only borrowing $160,000.

There are arguments to be made both for and against making the biggest down payment possible. There are also pros and cons of a larger down payment.

The Pros of a Bigger Down Payment

If you save the cash and want to make a bigger down payment, one big benefit is reducing how much you’re borrowing. When you have a smaller loan, you’re going to pay less in total interest over the life of your loan.

You’ll also get lower payments each month.

You can use a loan calculator to see how much a larger down payment has the potential to affect your payments.

With a bigger down payment, you may qualify for lower interest rates. A lender likes a bigger down payment because they’re taking less risk on you. If you default on your loan, they see that they’ll be able to get more of their money back.

If you can manage to make a down payment of at least 20%, you can avoid paying private mortgage insurance.

Since down payments that are larger mean a smaller monthly payment, you’ll have less stress in this area.

There are opportunities to borrow against assets such as your home. The home is an asset that serves as collateral. The larger your down payment is, the sooner you build equity in your home. Then, you can borrow against that equity.

Why Would You Make a Smaller Down Payment?

While there’s a significant upside to maxing out how much you put down on a home, it’s not always the right situation. We tend to see a bigger down payment as always being better. In reality, it depends.

One reason to go with a smaller down payment is that it can take a long time to save that much cash. You may not want to wait so long to buy a house.

Even if you do save enough money for a large down payment, it can create stress to think about putting the money into a house. If you were to face an unexpected situation and had less of an emergency reserve, it could create problems.

Another reason a lower down payment could make sense for you is if you want to make any repairs or potential upgrades to the home after you buy it.

Most lenders will set a minimum down payment required, and you can always pay more than that.

Down payments will show a lender you’re serious and that you’re putting yourself on the line as far as taking a risk but think about your personal financial situation before you decide.

 

 

Redfin Reports Early-Stage Homebuying Demand Hits Highest Level Since May

 

 

 

Written by Redfin Posted On Friday, 31 March 2023 09:30

• font size

Redfin’s Homebuyer Demand Index jumped as prices fell for the sixth-straight week and mortgage rates declined for the third week in a row. But a lack of new listings is holding back sales.

House hunters are wading into the market as mortgage rates and home prices continue to decline, according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage.

Mortgage-purchase applications increased for the fourth week in a row and Redfin’s Homebuyer Demand Index—a seasonally adjusted measure of requests to tour homes, make an offer and/or talk to a Redfin agent about a home search—jumped to its highest level since last May during the week ending March 26.

“My phone is ringing, and it’s usually first-time buyers or investors,” said San Francisco Redfin agent Ali Mafi. “First-time buyers are interested in looking at homes because prices have come down, though they’re still concerned about high mortgage rates. Investors who can pay in cash are honing in on luxury San Francisco condos because prices on those have dropped even more significantly than the overall market.”

The uptick in early-stage demand has yet to translate into more home sales. Pending sales dropped 19% year over year nationwide in the four weeks ending March 26, the biggest decline in about two months. Demand for homes hasn’t yet translated into an improvement in sales mainly because would-be buyers are limited by lack of supply.

New listings of homes for sale declined 22%, one of the biggest drops since the start of the pandemic; homeowners are reluctant to sell because they don’t want to give up a low mortgage rate. The lack of new listings is causing a growing share of homes to fly off the market quickly: Nearly half of homes are selling within two weeks, the largest share since June.

Home prices drop in over half of the country, but rise in some areas

While the scarcity of new listings is holding back sales nearly everywhere in the U.S., prices are dropping fast in some parts of the country and increasing in others.

Home prices dropped in more than half (28) of the 50 most populous U.S. metros, with the biggest drop in Austin, TX (-15.2% YoY). Next come four northern California metros: San Jose, CA (-12.9%), San Francisco (-11.7%), Sacramento, CA (-11.4%), and Oakland, CA (-10.8%). Those are the biggest annual declines since at least 2015 for Austin and Sacramento.

On the flip side, sale prices increased most in Milwaukee, where they rose 14.1% year over year. Next come Fort Lauderdale, FL (8.5% YoY), Virginia Beach, VA (6.9%), West Palm Beach, FL (6.7%) and Providence, RI (6.4%).

On a national level, the median U.S. home-sale price fell 1.8% year over year to $360,500, marking the sixth straight week of declines after more than a decade of increases.

“Prices are still rising quickly in some places while they are down by double digits in big tech hubs, so it’s important for prospective buyers to work with an expert local agent,” said Redfin Deputy Chief Economist Taylor Marr. “One thing that’s true almost everywhere: It’s difficult to find a desirable, well-priced home for sale, so offer and negotiation strategies differ depending on where you’re looking.”

Leading indicators of homebuying activity:

• For the week ending March 30, average 30-year fixed mortgage rates dropped to 6.32%, the third straight week of declines. The daily average was 6.59% on March 30.
• Mortgage-purchase applications during the week ending March 24 increased 2% from a week earlier, seasonally adjusted, marking the fourth straight week of increases. Purchase applications were up 19% from a month earlier, but down 35% from a year earlier.
• The seasonally adjusted Redfin Homebuyer Demand Index jumped to its highest level since September during the week ending March 26. It was up 6% from a week earlier, but down 24% from a year earlier.
• Google searches for “homes for sale” were up about 44% from the trough they hit in December during the week ending March 25, but down about 17% from a year earlier.
• Touring activity as of March 26 was up about 20% from the start of the year, compared with a 24% increase at the same time last year, according to home tour technology company ShowingTime.

Key housing market takeaways for 400+ U.S. metro areas:

Unless otherwise noted, this data covers the four-week period ending March 26. Redfin’s weekly housing market data goes back through 2015.

• The median home sale price was $360,500, down 1.8% from a year earlier. That’s the sixth week in a row of prices declining annually after more than a decade of increases. The latter is according to Redfin’s monthly dataset, which goes back through 2012.
• The median asking price of newly listed homes was $392,225, up 1.4% year over year.
• The monthly mortgage payment on the median-asking-price home was $2,518 at a 6.32% mortgage rate, the current weekly average. Monthly mortgage payments are down slightly from the peak they reached three weeks ago, but up 16% ($354) from a year ago.
• Pending home sales were down 19.2% year over year, the biggest decline in nearly two months.
• Pending home sales fell in all 50 of the most populous U.S. metros. They fell most in Las Vegas (-52.6% YoY), Sacramento (-48.6%), San Jose (-46.4%), Oakland (-45.4%) and Seattle (-45.2%).
• New listings of homes for sale fell 21.7% year over year. New listings have been dropping by about 21% to 22% on a year-over-year basis for the last month.
• New listings declined in all 50 of the most populous U.S. metros, with the biggest declines in Sacramento (-48.8% YoY), Oakland (-44.3%), San Francisco (-41.8%), Riverside, CA (-39.7%) and San Diego, CA (-37.9%). New listings declined least in the South: Nashville, TN (-1.1% YoY) saw the smallest drop, followed by Dallas (-3.3%), Fort Worth, TX (-3.4%), Austin (-4.8%) and Houston (-9.3%).
• Active listings (the number of homes listed for sale at any point during the period) were up 13.9% from a year earlier, the smallest increase in more than four months.
• Months of supply—a measure of the balance between supply and demand, calculated by the number of months it would take for the current inventory to sell at the current sales pace—was 2.8 months, down from 3.5 months a month earlier and up from 1.9 months a year earlier.
• 47% of homes that went under contract had an accepted offer within the first two weeks on the market, the highest level since June, but down from 53% a year earlier.
• Homes that sold were on the market for a median of 41 days. That’s up from 24 days a year earlier and the record low of 18 days set in May.
• 26% of homes sold above their final list price, the highest share in more than three months but down from 49% a year earlier.
• On average, 4.9% of homes for sale each week had a price drop, up from 2.2% a year earlier.
• The average sale-to-list price ratio, which measures how close homes are selling to their final asking prices, was 98.6%, the highest level in four months but down from 101.7% a year earlier.

To view the full report, including charts, please visit:
https://www.redfin.com/news/housing-market-update-homebuying-demand-increases