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Month: December 2010
Don’t rock the boat baby…
There has been a recommendation by The President’s Commission on Fiscal Responsibility and Reform to reduce the mortgage interest deduction for home owners. The commission recommended turning the mortgage interest deduction into a tax credit, capping eligible mortgages at $500,000, and eliminating tax benefits for second homes and home equity loans. This deduction has been in place over 80 years and has been on of the main reasons people make the move from becoming renters to home owners. The tax deductibility of interest paid on mortgages is a powerful incentive for home ownership and is one of the simplest provisions in the federal tax code. In a recent survey commissioned by NAR and conducted online in October 2010 by Harris Interactive of nearly 3,000 homeowners and renters, nearly three-fourths of homeowners and two-thirds of renters said the mortgage interest deduction was extremely or very important to them. If this reform takes place it will have far reaching implications in our economy and in our housing sector.
So, how will the change in mortgage interest deduction affect housing?
- There are currently 75 million homes in America, approximately 51 million are owner occupied and have a mortgage. In 2008, nearly 38.5 million people claimed a deduction for mortgage interest on their taxes. Changing this IRS code will affect a huge number of people who file taxes each year and count on this deduction as part of their home budget.
- It is estimated that the home prices and values of homes will drop by close to 15%. This will impact home owners net worth and wealth drastically. Home values in 2009 were estimated at $19.3 trillion meaning nearly $2.9 trillion of wealth would be lost by homeowners – a drastic situation for many Americans.
- Housing is nearly 20% of GDP as each property sale generates over $60,000 in revenue and touches over 20 industries. As mentioned above, nearly 3/4 of home owners and 2/3 of renters claim the mortgage interest deduction as extremely or very important to them and their decision to buy a home. This will substantially reduce the number of sales every year will affect the overall economy.
- This change will affect an already rocky housing sector of our economy. Billions of dollars have been spent to support the housing sector so does it really make sense to reverse the trend now?
- Jobs will be lost as a result – real estate offices will close – the need for Realtors will diminish – builders will go out of business – title companies will reduce in size – the mortgage business will shrink – county government employees in record rooms will lose jobs – trades people will lose their jobs and the list can go on and on.
This decision will be bad for business, home owners, the economy and so much more – keep the mortgage interest deduction in place for the good of America. Get it? Got it? Good!
Now, go sell something!
My Top 10 Predictions for 2011 are finally here!
As we approach the end of the year, it is time to reflect upon what we experienced, what is happening now and where things may take us next year to allow us to adjust our plans and to make the most of our opportunities ahead of us!
This past year was once again riddle by media speculation on housing and its demise on a national level while our market was virtually ignored – even by local media outlets – on how resilient we are relative to the rest of the country. We will see this again this upcoming year as negative news always sells. Keeping this in mind, areas of concern that will be reported by the media are interest rates, pricing, foreclosures and short sales. We have seen a decrease in inventory as the holiday season is upon us but houses continue to sell nonetheless. The driving forces include interest rates which remain at generational lows and prices that are beginning to rebound in many areas encouraging fence sitters to jump off and become home owners.
So, what is my forecast for 2011? Let’s take a look!
- Short sales will remain difficult as banks continue change the rules under which they operate. Until there is a systematic, streamlined process buyers and sellers will remain in peril when dealing with short sales. Recent issues have been with banks countering contracts to ridiculous values and countering with unrealistic settlement dates of just a few days after making our clients wait over 15 months for an approval. The banks need to hire people familiar with the home buying process or train the ones they have to understand how real estate sales are processed in order to facilitate more successful sales. The problem is, this won’t happen in 2011.
- Rates hit record lows the second week of November and have increased every week since with the announcement of QE2. However, the central bank voted to keep the target range for its benchmark federal funds rate at 0 to 0.25 percent, and reiterated its commitment to purchase an additional $600 billion in long-term Treasury securities by June 2011. This announcement should help keep interest rates below 5.5% for 2011.
- New home sales will rebound locally as builders have weathered the storm. Additionally, we will see more local builders enjoy success as new companies are formed or have been formed recently and they can fill the new home niche better than the national builders with their knowledge, skill and flexibility as they have lower overhead. Competitive pricing, up to date floor plans and desirable locations will contribute to all builders’ success in 2011.
- Many agents, loan officers and title agents will drop out of the business as the business becomes more specialized with short sales, foreclosures and continuous changes in financing. The consumer will demand professionalism from their agent. The new agent pool will be younger and will not only embrace technology but will use it to their advantage over “experienced” agents.
- More agents will gravitate to utilizing video as the consumer prefers video over text and pictures. Those who adopt early will enjoy more success than those who do not embrace this medium of communication – much like the implementation of various social media tools. Video is the new trend in real estate in 2011 and beyond and is here to stay.
- We will see a moderate increase in prices in 2011. Some areas will see greater gains and some will see moderate declines as each market/neighborhood has its unique benefits and challenges. The saying has gone from “all real estate is local” to “real estate is hyperlocal” – use a professional.
- The banks, Freddie Mac and Fannie Mae will slowly release foreclosures onto the market to protect their values and the market values in neighborhoods. Foreclosures will remain a constant force in the news in 2011.
- The economy is recovering slowly but at a rate that has been insufficient to bring down unemployment nationally. Locally we are at 4.8% and we should remain low compared to the rest of the country. The DC area boasts the lowest unemployment relative to the 15 major markets around the country and this trend will continue through 2011. This trend will help sustain our real estate market as houses are where the jobs go at night.
- The market and consumer will demand more professional agents with the ability to provide the right tools and technology to make their transactions smoother and efficient. Agents who attend trainings, earn designations, and continue their education will see their incomes soar above the agents who continue to conduct their business as usual.
- Companies that provide up to date educational opportunities, hire the best of the best, invest in technology, services and support plus trim their expenses by making tough choices will thrive in 2011 and beyond. Companies that are top heavy, unable to consolidate or provide tools necessary for success will fail and close providing opportunities for well balanced companies. As a result, more closures in the real estate industry will continue in 2011.
As you can see, the New Year will offer challenges and opportunities. Recognize how you can take advantage of what is presented to you and make 2011 your best year ever! Get it? Got it? Good!
Now, go sell something!
Don’t miss out on the American Dream!
Why is now the time to pursue the American Dream and buy a house in today’s market? The reason is because many of the fundamentals of home ownership remain strong in every market – even today! Let’s review, shall we?
- Owning a home provides stability in you and/or your family’s life. You are not subject to having to move on the whim of your landlord and you can start to build “roots” in a neighborhood.
- You become part of a community hence building upon the theme of pride in ownership.
- Today’s interest rates are at historic lows making payments extremely affordable.
- Prices have bottomed out and are on the rebound in many areas – get on board before prices and rates increase again.
- The home becomes “yours”. You can paint, re-carpet, renovate, landscape and even more without approval from a landlord and the improvements add value to your home, not someone else’s property.
- Home ownership is a wealth building strategy – each payment decreases your loan balance increasing your equity in the home – it is a built in savings account!
- The tax savings and benefits are a huge benefit to your financial bottom line.
- You choose when to move – not someone else.
- Home ownership strengthens our economy – each home purchase touches over 20 industries and creates over $60,000 in revenue
- The housing sector represents nearly 20% of the US’s GDP and helps drive our economy
- And best of all – it is the American Dream!
As we know, all markets are cyclical and we have been in a down cycle for real estate for over three years now – the market will come back – it always does. Now is the time to take advantage the opportunity afforded you today – just look at the graph…
Now… Later…
Sales Price $400,000 $360,000 (assumes 10% drop in prices)
Loan Amt $320,000 $288,000
Rate 4.375% 6.125%
P&I $1,597.71 $1,749.92
Save $152.21 per month by buying now
Save $18,265 over the next 10 years
If you are a savvy buyer, now is the time to make the move. Get it? Got it? Good!
Now, go buy something!
How many of my 2010 predictions came true?
It’s review time for 2010…
Well, the predictions forecasted by me last year were:
- Interest rates would rise in the second quarter as the government was going to exit the purchasing of Mortgage Backed Securities . Wow, was I wrong here, interest rates sunk to the lowest level in history.
- House values will stay stable in most price points below $400,000 and will drop in mid price points – $400,000 – $800,000. Fewer buyers will take advantage of market conditions and consumer confidence will keep them where they are today. Well, I was pretty damn close – prices increased slightly in the lower price ranges but definitely dropped in the mid price ranges and consumer confidence remains in the tank.
- Unemployment will rise through the first half of the year then level off late third quarter – we can’t get any worse than we are nationally. Locally, we are in good shape with unemployment and we should hover around where we are today. The prediction was true on both fronts and unemployment is contributing to low consumer confidence. As the saying goes, when your neighbor loses their job it’s a recession, when you lose your job, it’s a depression – many Americans are still feeling the effects of unemployment nationally.
- Foreclosure inventory will increase nationally – ours will see a slight increase but won’t have a significant impact like it has in recent years. Any foreclosure inventory locally will get absorbed quickly as we have such pent up demand. Again, pretty much true, our foreclosure numbers increased slightly but boy, nationally, they went through the roof!
- Short sale inventory will be bigger than foreclosure inventory nationwide – including our area. It is important to understand how they work, get a designation to take advantage of this opportunity and to understand how to get them through. As predicted, short sale inventory increased both nationally and locally. And, it is true, if you have a designation, you understand the process better and can help more distressed home owners as a result.
- More real estate offices will close, merge and we will see additional acquisitions – boutique real estate offices will become a thing of the past as agents and clients demand more technology and services that smaller firms cannot afford. This most definitely occurred and will continue through 2011 – especially in the large regional independents and the franchises agencies with fewer than 15 agents.
- Social media marketing will be even more in the forefront moving into the future – get on board or get left behind. The consumer embraces this medium – so should you! Many agents have gone way overboard and although they are embracing social media, they are not utilizing it correctly and as a result are turning off consumers.
- Videos will be more prevalent in agent’s marketing of homes and themselves. Get proficient in the use of flips, camcorders, and digital cameras that have recording features. More agents are becoming aware of video and we are seeing more of it in the market but more need to utilize the medium as the consumer is drawn to videos.
- More agents will go green as this will become an even bigger “buzz” word going forward. Get ahead of the curve and get a green designation today! Yes, agents did go green but the residential market is still lagging behind the commercial arena in scope and magnitude of going green.
- More agents will exit the business as the business becomes more specialized. This has happened which is a good thing for both the profession and more importantly, the consumer. Today, more than ever, it is important to work with a Realtor who is full time and has the capacity to convey market conditions, trends and is familiar with the contract and process.
Well, in retrospect, the vision was pretty decent for what was going to happen in 2010. The one item that was unfortunate is that people weren’t able to take advantage of the low rates or were not in a position to take advantage of the low rates due to value issues. However, many were which is great for them. Be on the lookout for my predictions for 2011! Get it? Got it? Good!
Now, go sell something!
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