Home prices are on the rise; the most recent FNC Residential Price Index (RPI) shows U.S home prices made a climb of nearly 7 percent from March to April, the largest price acceleration since June 2012.
What is the driving force behind this acceleration? One possible cause may be the rising seasonal demand as we make way into spring and summer. In addition, improved credit availability, low interest rates, and low home prices continue to add momentum to the housing recovery.
Signs of rising mortgage rates which have been hovering at historical lows in the last 10 months have likely drawn out additional pent-up demand. Foreclosure activities continue to drop, with distressed sales contributing only 16.0% to total home sales, down from 17.8 percent in March and 21.6 percent a year ago. The median sales-to-list price ratio in April was 95.5, up from 93.7 in January and 92.5 a year ago.
Based on recorded sales of non-distressed properties (existing and new homes) in the 100 largest metropolitan areas, the FNC 100-MSA composite index shows that April home prices rose much faster than in the previous months. The two narrower indices (30-MSA and 10-MSA composites) similarly recoded a nearly 1.0 percent increase.
Housing Bubble: Is There a New One Forming?
The housing market is recovering so nicely that it has caused some to wonder whether a new housing bubble is forming. Today, we want to explain that the fear of a new pricing bubble in real estate is unwarranted.
Trulia revealed some great data on this point in a recent blog post. They explained that, even with the recent price increases, national home prices are still 7 percent undervalued. Trulia explained:
Home prices nationally remain undervalued relative to fundamentals and much lower than in the last bubble. Thats why todays price gains are actually still a rebound, not a bubble.
Prices are below their fundamental value in the vast majority of the country (91 of the 100 largest metros). Even in the parts of the country that are now overvalued they come nowhere near the percentages we saw in 2006-2007. For example, lets look at the two markets that are most overvalued today. In Orange County, California prices are currently overvalued by 9%. In 2006, prices in the region were overvalued by 71%! The second most overvalued market today is Austin, Texas at 5%. Texas real estate prices did not skyrocket as they did in many other parts of the country during the last boom. Austin prices were shown as being 12% overvalued at the time.
Again, prices are still undervalued in 91% of markets and, even in the markets that are overvalued, they are nowhere near the numbers of the 2006-2007 bubble
Why rent when you can buy?
Why rent when you can buy?
Invest Your Rent In Your First Home The only one who benefits from your rent check is your landlord. As a renter, you never see that money again. But as a homeowner you can profit when you sell. In addition, as a renter you can't use any of your rent payments as a tax deduction, like homeowners can. If you or someone you know is renting, it's time to put that rent check to better use!
Now is a great time to buy. After years of being priced out of the market by high home values, first-time home buyers are seeing some excellent reasons to invest in their own homes today. Here's why:
Lower (even bargain) prices in some areas
Good selection of homes to choose from
Greater flexibility from sellers on terms and contingencies
Very affordable interest rates
Special federal and local government tax incentives
Variety of mortgage options.
Some of these benefits won't be around for long, so the sooner you decide to buy, the more advantage you'll have.
You're in the driver's seat. Of course, first-time home buyers are also first-time mortgage borrowers, who are not only comparing homes to purchase but also weighing all their different mortgage options. What makes current renters especially attractive to mortgage professionals -- and to home sellers -- is that they don't need to sell a home before they can buy. That helps simplify and speed the transaction for everyone - making you a sought-after home buyer.
The Colorado Springs real estate market is starting to really rev up. April home sales were up 18.8% from last year, and the median price (1/2 above, 1/2 below) was up 11.6%! This is the 14th consecutive month where prices have risen compared to the prior year. The inventory of unsold homes continues to be very low, down .6%, a 3.6 month supply at the April sales rate. April building permits for detached single family homes were up 58.1%, as more buyers choose new construction to compensate for fewer homes on the market. The percentage of homes disclosed as distressed was 17.7%, or 165 homes.
Colorado Springs home buyers are continuing to take advantage of low interest rates, which have been consistently in the low to mid 3s. Low long term mortgage rates and higher rent prices are making the decision to buy rather than rent MUCH more attractive at this time.
The unemployment rate in Colorado Springs for March 2013 was 8.6%, which is an improvement from its peak of 9.8% in July of 2012, but is still largely attributed to a reduction in job seekers rather than an increase in employment opportunities. It remains to be seen whether this high a level of unemployment will allow the housing market to continue to recover, although there have been some recent employment announcements that may cause this number to drop soon. Summer unemployment in the tourist industry in particular was also affected by the Waldo Canyon fire. This effect should not persist going forward.
Strong investor demand and low interest rates that have boosted the purchasing power of buyers.
The price of a home is the major consideration when deciding whether or not it makes financial sense to purchase a house. Experts are not only projecting that house values will increase in 2013. They are also more optimistic in the level of appreciation they are projecting as the market begins to heat up.The latest survey of a nationwide panel of 118 economists, real estate experts and investment and market strategists reveals they project home values to end 2013 up an average of 4.6% according to the first quarter. This is after they had projected a 3.1% increase just three months ago.
Home Interior Colors
By Melissa Dittmann Tracey, REALTOR(R) Magazine
More light is reflected by bright colors, resulting in excessive stimulation of the eyes, researchers note. Yellow is an eye irritant. Babies cry more in yellow rooms, husbands and wives fight more in yellow kitchens, and opera singers throw more tantrums in yellow dressing rooms. That said, yellow is the first color the human eye tends to notice so in small doses it may be effective. It can help you draw attention to an item when used as an accent color. Also, using yellow in softer tints or in small quantities may not be such a turn-off.
A recent article at Homesessive.com (Paint Color Trends to Avoid) pinpointed trendy color combos that may have once been a turn-on that are now becoming a turn-off in home interiors. San Francisco color expert Kelly Berg recently weighed in at Homesessive.com about some trendy color combinations to avoid, such as:
Greige: The gray and beige combo in a space to create a monochromatic effect. Instead, Berg recommends pulling in some accent colors, likegrassy greens, to make the space more warm and inviting. She also recommends mixing in reflective surfaces, such as glass and metal, to lighten up the room since gray tends to absorb more light than other hues.
Chocolate brown and blue: This trendy color combo of a chocolate brown and Tiffanys blue may be growing tiresome in home interiors. Berg recommends freshening up the look by adding a third color to the mix, such as hot pink, coral, or metallics in silver or gold.
Red, Gold and Green: This go-to rustic color pattern also may be beginning to grow stale in interiors. Berg recommends avoiding using all three colors in equal portions when you have a tri-color scheme in a home. She also recommends keeping the saturation levels of the color similar, but not exactly the same to liven up the look.
The all white kitchen: A kitchen all in white can look fresh and clean, but the look may be getting overdone and growing dull. Liven it up by pulling in some color from an adjacent space or pull a color from the dishes, Berg says. For example, if the home owner has blue dishes, you might try using deep indigo as an accent color.
Thinking of Buying Your Dream Home in Colorado Springs?
Recent survey showed that 3 out of 4 future home buyers (who are not first time buyers) plan to move up to some form of a better home. The breakdown:
Move to a significantly bigger home (49%)
Move to a nicer home (17.5%)
Move to a nicer part of town (8.6%)
If you or your family falls into any one of these categories, you should strongly consider making the move sooner than later. The cost of your new dream house will be determined by two factors: the price of the house and the mortgage interest rate. Both are projected to increase this year.
According to the Mortgage Bankers Association, after reaching record lows in 2012, the 30 year mortgage rates are expected to creep up slowly in 2013 to 4.4%.
Now is a great time to buy the home you always dreamt of owning. However, the longer you wait, the more it will cost.
House Prices: When Will 2006 Values Return?
by The KCM Crew on February 11, 2013 There is a lot of optimism regarding house prices. The most recent Home Price Expectation Survey projects a 3% -3.5% increase in values for each of the next 5 years. We concur that most parts of the country will see varying levels of appreciation over that time. However, we must realize that we will not see 2006 values any time soon.Barclays U.S. residential credit strategy team recently predicted that 2006 values would return in 2021. From an article in DSNews:
While the floor appears to have materialized, they stress that home prices are likely to recover slowly over the next 4 to 5 years.
We expect on average a 3-4 percent annual increase in home prices [nationally] in coming years, they said in an updated market outlook.
At that rate, Barclays analysts explained, home prices will be slightly below their 2006 peaks even in 2020, finally returning to pre-crisis peak levels in June 2021.
In an article for CNNMoney, the analytics firm Fiserv projected that 2006 prices would not return until 2023:
prices will bounce back an average of 3.7% a year for the next five years a rate that would still leave prices 20% below the peak. At that forecasted growth rate, the national average high of $238,000 would not be hit again until 2023.
If you are waiting for 2006 values to return before selling your house, realize it will take years.
Don't let an appraisal stymie your home sale
I am selling my home and buying another. Purchase agreements have been hammered out, inspections have been done and issues that were uncovered are being addressed, and the closing date has been set. There's just one last hurdle we have to clear before I'm ready to say with certainty that we are moving: the appraisal. Over the past three months, real-estate appraisals have held back more than one-third of home sales, according to a survey by the National Association of Realtors. Of the real-estate agents surveyed, 9% said a contract was delayed because an appraisal came in below the negotiated price, 15% said a contract was renegotiated to a lower price, and 11% said a contract was canceled as a result of a low valuation.
A low valuation can scuttle a deal if the buyers are relying on financing from a bank to purchase a home. Banks require appraisals to verify that a home's sale price is supported by its market value and won't issue a loan for more than the appraised value. However, there are several things buyers and sellers can do if an appraisal is lower than the price they agreed on, says Walter Molony, a spokesman for the National Association of Realtors. "You don't have to sit there and silently take what happens," he says.
Sellers can:Look for errors in the appraisal report that might have led to a low valuation. Make sure the appraiser recorded the correct square footage of the property, the right number of rooms and any upgrades that might boost the value of your home.
Ask the appraiser to reconsider his or her evaluation if you think it does not accurately reflect the value of your property. For example, the appraiser might have used short sales and foreclosures when making comparisons for valuation purposes, and the low prices of these properties could have hurt your home's appraisal.
Pay for your own appraisal and, if the valuation is higher, use it to contest the first appraisal. To find a certified appraiser, visit the Appraisal Institute's website.
Buyers can:Try to renegotiate the price if you don't have the cash to cover the difference between what the bank is willing to lend and the negotiated price.
Ask for another appraisal if the seller won't agree to a lower price. Ask the new appraiser not to include any foreclosures or short sales in his list of comparable properties.Cancel the contract if it was contingent upon your ability to secure a mortgage and if you aren't able to get a mortgage for the agreed-upon percentage of the purchase price because of the low valuation.
How to Deduct Your Mortgage Interest & Equity Loan Costs
Deducting mortgage interest is a great tax benefit that can make home ownership more affordable. Your first mortgage isnt the only loan that qualifies, either. In many cases, you can also deduct interest on home equity loans, second mortgages, and home equity lines of credit, or HELOCs.
If you want to deduct all of your mortgage interest, there are limits on both how much money you can borrow and on what you do with the money you get. You also need to itemize your return to reap the benefits of these deductions. Calculations can be complicated, so consult a tax adviser.
Know your loan limits
A good place to check out what you can deduct before you borrow is the chart on page 3 of IRS Publication 936. Itll walk you through the requirements you must meet to deduct all of your home loan interest. Its an hour well spent.
The first hurdle youll run into is the total amount of your loan or loans. In general, individuals and couples filing jointly can deduct the interest on up to $1 million ($500,000 if youre married and filing separately) in combined home loans, as long as the money was used for acquisition costs, that is the cost to buy, build, or substantially improve a home, explains Scott OSullivan, a certified public accountant with Margolin, Winer&Evens in Garden City, N.Y. Any interest paid on loan amounts above the $1 million threshold isnt deductible.
The same $1 million limit applies whether you have one home or two. Buying a vacation home doesnt double your loan limits. And two homes is the max; you cant deduct a mortgage for a third home. If you have a mortgage you took out before Oct. 13, 1987, you have fewer restrictions on claiming a full deduction. The calculations for grandfathered debt can get complex, so get help from a tax professional or refer to IRS Publication 936.
Whatever you do, dont forget that you can also deduct the points and fees associated with a first or second mortgage when you initially buy your home, says Jeff Rattiner, a CPA with JR Financial Group in Centennial, Colo. If you refinance the same house, you have to deduct those costs over the entire term of the loan. If you refinance again, you can deduct all the costs from the earlier refi in the year you take out the new loan.
Spend loan proceeds wisely
The other limitation on how much you can borrow and still get your deduction comes into play when you take out a home equity loan or HELOC that you dont use to buy, build, or improve your home. In that case, you can deduct the interest you pay only on the first $100,000 ($50,000 if married filing separately). This loan limit also applies in a so-called cash-out refi, in which you refinance and take out part of the equity youve built up as cash, says John R. Lieberman, a CPA with Perelson Weiner in New York City.
That means if you decide to take out a $115,000 home equity loan to buy that Porsche, you can deduct the interest on the first $100,000 but not on the $15,000 that exceeds the limit. Use the same $115,000 to add a new bedroom, however, and the full amount is allowable under the $1 million cap. Keep in mind, though, that the $115,000 gets added into the pot of whatever else you owe on your other home loans. In many cases, points and loan origination costs for HELOCs are deductible.
Consider this simplified scenario: You borrow $250,000 against your home at 8% interest. That means youll pay $20,000 in interest the first year. Spend the $250,000 on home improvements, and all of the interest is deductible. Spend $150,000 on improvements and $100,000 on your kids college tuition, and all the interest is still deductible.
But spend $100,000 on improvements and $150,000 on tuition, and the improvement outlays are deductible, though $50,000 of the tuition expense isnt. Thatll cost you $4,000 in interest deductions. Preserve the $4,000 deduction by coming up with the extra money for tuition from another source, perhaps a low-interest student loan or by borrowing from a retirement plan. For someone in a 25% bracket, a $4,000 deduction lowers taxes by $1,000, plus applicable state income taxes.
Beware the dreaded AMT
Even if youve followed all the loan limit rules, you can still get stuck paying tax on mortgage interest. How come? Its all thanks to the Alternative Minimum Tax. Congress created the AMT, which limits or eliminates many deductions, as a way to keep the wealthy from dodging their fair share of taxes.
Calculating the AMT can be complex, but if you make more than $75,000 and have several kids or other deductions, you might well be subject to it. Problem is, if you fall into the AMT group, you may not be able to deduct interest on a home equity loan, even if the loan falls within the $1 million/$100,000 limit. If youre subject to the AMT and borrow money against the value of your home, youll have to use it to buy, build, or improve your place, or you may not have a chance to deduct the interest, says Rattiner, the Colorado CPA.
This article provides general information about tax laws and consequences, but shouldnt be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice.