Better, Not Bigger, Homes Among 2024 Design Trends

Better, Not Bigger, Homes Among 2024 Design Trends: NAHB: Buyers say they want smaller homes now and are looking for homes around 2,070 sq. ft., compared to 2,260 sq. ft. 20 years ago.

When does an investment become a second home?

 

Feb. 20, 2017 – Question: My primary residence is in Florida. I have owned and rented a condo in Hawaii since 2004. If I stopped renting the condo and lived in it for half the year, would my condo be considered a second home? Would there be tax consequences? – Name not provided

Answer: If you lived in the condo half the year and no longer rented it, it would be a second home. You could deduct any mortgage interest and real estate taxes paid on the condo as part of your itemized deductions. You should maintain the depreciation schedule for your records because when you sell the property, depreciation factors can reduce your cost basis.

When you sell a rental property at a loss, you can deduct the loss. When you sell a second home, the loss is considered personal and is not deductible. In both cases, a gain on the sale would be taxable. – Paula Taylor

© 2017 The Orlando Sentinel (Orlando, Fla.); Paula Taylor, CFP, contributes to the Orlando Sentinel's Ask an Expert series. Distributed by Tribune Content Agency, LLC.

Still Stuck in the Mud. Keeping you updated on the market for the week of April 28, 2014.

MARKET RECAP Still Stuck in the Mud Existing home sales are like a Jeep with bald tires stuck in a mud bog: The wheels spin furiously, but the Jeep goes nowhere. Not only does the Jeep go nowhere, it backslides. So is the case with existing-home sales. For the seventh time in the past eight months, sales have backslid. Sales for March were 0.2% lower compared to February, posting at 4.59 million on an annualized rate. Year over year, sales are down 7.5%, which is the steepest rate of decline in nearly three years. Prices, on the other hand, continue to rise, with the median price moving up 5.4% to $198,000. Now, new-home sales are adding to the sense of discouragement. New-home sales had been trending mostly up over the past 12 months. That trend ground to a halt in March, with sales plunging 14.5% to a 384,000 annual rate , far below anyone's estimate. Prices are an obvious drag on sales. The median price of a new home surged 11.2% to a record high $290,000. Year over year, prices are up 12.6%. Prices in many markets are a baffling anomaly. They continue to rise, but they're not materially pulling in additional inventory. Admittedly, if you sell one home at a higher price, you'll likely have to buy another at a higher price, but rising prices tend to pull in more people willing to sell. In many markets this isn't occurring. Prices simply continue to rise, and continue to rise at a rate we thought would have abated by now. Tight lending standards and higher mortgage rates are frequently fingered as culprits in stagnating home sales. Yes, lending standards are tighter than they were in 2006, but someone with a work history and a decent FICO score can still readily secure financing. As for rates, 4.5% continues to act as a ceiling on the 30-year fixed-rate loan. To be sure, rates spiked higher last summer, but the market should have adjusted to the new reality by now. In the past, we've blamed a stagnating economy and weak job growth for sales failing to pick up pace. A dearth of new buyers entering the market is also to blame. One concern we have is ballooning student debt . A lot of young adults owe a lot on student-loan debt these days. That's making it tough for them to enter the housing market. We remain positive, nonetheless. All markets are local, and all markets are complicated. There is a myriad of variables that influence value and establish trends. We think economic growth will overcome higher mortgage rates, and even higher home prices. Frustratingly, growth has been slow in coming about, but we still expect it to come sooner than later.

 

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Pending Home Sales Index (March)	Mon., April 28, 10:00 am, ET	0.5% (Decrease)	Important. Sales continue to stagnate on low inventory and rising prices. Both trends are unlikely to end soon.
S&P/Case-Shiller Home Price Index (February)	Tues., April 29, 9.00 am, ET	0.6% (Increase)	Important. Price growth will likely accelerate over the next couple months.
Mortgage Applications	Wed., April 30, 7:00 am, ET	None	Important. Purchase applications have reversed course and point to slow sales growth.
Gross Domestic Product (1st Quarter 2014)	Wed., April 30, 8:30 am, ET	1.0% (Annualized Growth)	Important. Sluggish economic growth explains sluggish job growth so far this year.
Employment Situation (April)	Fri., May 2, 8:30 am, ET	Unemployment Rate: 6.6% Payrolls: 210,000 (Increase)	Very Important. Monthly job growth must exceed 200,000 to sustain the economy.

 

How the Washington Post Got It All Wrong on Home Ownership A recent article in the Washington Post was hardly favorable to housing. Basically, the article dispels the belief that a home is the best investment for most people. Other investments, such as stocks, are better investments over the long run. The article misses the point. The home you own isn't an investment. Properly speaking, a home is an asset. It's an asset that satisfies a very basic need – it provides a place to live. That's not the proper role of an investment, which most people buy for immediate cash flow and to eventually sell at a higher price for a profit. A home frequently satisfies the latter requirement: Over time, a home usually appreciate in value. We aver that a decade from now most homes across the nation could be sold for more than the purchase price today. In this regard, a home is an appreciating asset, but still not an investment. A home is only an investment when it is rented to generate monthly cash flow or to be renovated and flipped for a profit. But in this case, a house is not a home. It's only a home to the family occupying it. We might be parsing semantics here, but words matter, and the Washington Post got the words wrong.

Market Recap for the week of March 17, 2014.

MARKET RECAP How the Unexpected Leads to the Expected Lending rates were up this past week, though not discerningly so. When we parse the national averages, we see the 30-year fixed-rate mortgage was up five basis points to 4.5%, according to Bankrate.com . Freddie Mac's data show a slightly frothier gain, with the 30-year loan up nine basis points to 4.37%. A rate increase was inevitable after the February employment report, which showed an unexpected lift in payrolls. Specifically, the Bureau of Labor Statistics (BLS) reported the economy added 175,000 jobs last month – 26,000 more than the consensus estimate. In addition, net revisions for the prior two months show 25,000 more jobs than initially reported. The natural reaction (or the expected reaction) in the mortgage market was for rates to rise. We say that because the expected isn't what moves markets; it's the unexpected. What's expected is already baked into current market prices. When something unexpected occurs – such as the robust payroll numbers last week – markets move. In the case of interest rates, they moved up. We expect job growth to pick up pace. Recent growth has been hampered by atypically inclement weather. People simply weren't getting out and about. More telling, though, is the number of job openings, which is trending higher. The BLS reports that the number of job openings rose to 3.974 million in January compared to 3.914 million in December. Year over year, openings are up 7.6% and are at 2005 levels. The trend in job openings isn't a surprise when you look at the trend in capacity utilization rates , which reflects the extend to which factories, mines, and utilities are being used. The utilization rate is above 79%, the highest it has been in years. What's more, it has been trending higher since the second half of 2013. More employees are needed to support higher utilization rates. In addition, the rise in utilization rates points to more robust growth all around. After all, factories, mines, and utilities support other businesses. Our best estimate is for payroll growth to ratchet up to 200,000 by summer. Should that happen, and as it becomes apparent, higher payroll growth will get priced into interest rates. In short, we stick to our prediction that the 30-year fixed-rate loan will approach 5% by December. In the meantime, borrowers can capture a 30-year loan with a rate in the mid-fours, which is still darn good from a long-term historical perspective.

 

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Home Builders' Index (March)	Mon., March 17, 10:00 am, ET	49 Index	Important. Sentiment will rebound on more construction activity.
Housing Starts (February)	Tues., March 18, 8:30 am, ET	905,000 (Annualized)	Important. Weather has hurt starts, but the pace will pick up heading into spring.
Mortgage Applications	Wed., March 19, 7:00 am, ET	None	Important. Activity eased in the recent reported week, but the outlook for purchases remains upbeat.
Federal Reserve FOMC Minutes	Wed., March 19, 2:00 pm, ET	Federal Funds Rate: 0.0% to 0.25%	Important. Expect the Fed to reiterate its commitment to “taper.”
Existing Home Sales (February)	Thurs., March 20, 10:00 am, ET	4.58 Million (Annualized)	Important. Lack of inventory and weather will have held sales growth in check.

 

Still the Cheaper Option Ownership is the way to go in many local markets. Trulia's Winter 2014 Rent vs. Buy Report shows that home ownership is 38% cheaper than renting on a national basis. The advantage also holds in most local markets. In the 100 largest metro markets, ownership trumps renting, according to Trulia. We don't believe the 38% advantage will persist into 2015. The advantage will have been whittled away by higher lending rates and higher home prices. Both will be spurred along by job growth, which, in turn, will lead to more household formation – specifically formation in home ownership. In other words, we see more demand. We've discussed in the past how the home-rental market has changed, with large institutional money pouring into to purchase single-family homes to rent. We've been somewhat skeptical of the business model. Single-family homes don't offer the economy of scale that a building of rentals does. Fixing a plumbing problem in two homes 10 miles apart is different from fixing a plumbing problem in two units 10 yards apart. In other words, we see a move to more occupied ownership. This is a good thing and a virtuous circle: As more people own a home more people will be inspired to own one too. After all, most of us prefer to live in a neighborhood of owners. We prefer to own. This is a point worth emphasizing to our clients, as is the point that they can become a part of the virtuous circle at a 38% discount to renting. Article Courtesy of Patti Wilson, American Momentum Bank>

Big Changes to Condo Laws Take Effect

ORLANDO, Fla. – July 1, 2010 – A massive condominium bill addressing everything from fire sprinkler retrofits to incentives for moving excess condo inventory is among the real estate-related legislation taking effect today. “Legislators introduced more than 50 bills this session dealing with some aspect of condominiums and condominium associations,” says John Sebree, vice president of public policy for the Florida Realtors®. “At the end of the day, there was one – SB 1196 by Sen. Mike Fasano (R-New Port Richey). We worked hard to make sure this 103-page bill contained at least two of the many changes sought by Realtors: incentives for buyers of multiple condo units and repealing the requirement that individual owners carry hazard insurance.” The “bulk buyer” provision seeks to stimulate condo sales by enabling investors to purchase condo units in bulk (seven-plus units) without incurring the legal and financial liabilities of the original developer. The hazard insurance provision repeals a 2008 law requiring unit owners to provide proof of insurance every year. If a unit owner failed to provide a certificate of insurance, the association was allowed to purchase insurance on the owner’s behalf and assess the unit owner for the cost of the insurance. SB 1196 also specifies that: • Florida law no longer requires owners to purchase individual unit owner insurance coverage, though it could still be required by lenders or through the Declaration of Condominium;• Associations of condos over 75 feet high aren’t required to retrofit sprinkler systems;• Lenders must pay more of past-due assessments on foreclosed properties;• Associations may deny owners or occupants the use of common areas and recreational amenities when the owner is more than 90 days delinquent in paying financial obligations due to the association; and• Associations may divert tenant rents to pay for delinquent assessments owed by unit owners. Other laws taking effect today that impact real estate transactions or real estate practitioners provide that: • Documentary stamp taxes on short sales are based on the purchase price, not on the amount of the outstanding mortgage balance. HB 109 by Rep. Evan Jenne (D-Fort Lauderdale) codifies into law a similar ruling in 2008 by the Florida Department of Revenue. • Real estate and appraiser instructors and real estate school permit holders may serve on the Florida Real Estate Commission and the Florida Real Estate Appraisal Board under HB 713 by Rep. Ritch Workman (R-Melbourne).• Home inspectors, mold assessors and mold remediators must be licensed by the state effective July 1, 2010. All applicants are required to complete a 120-hour course. But the Department of Business and Professional Regulation (DBPR) lacked authority to approve the course until July 1. Consequently, the DBPR says it won’t enforce the licensing requirements until July 1, 2011. Visit the department website [http://www.myfloridalicense.com/dbpr/pro/homein/happens.html] for details. On a related note, HB 663 by Rep. Gary Aubuchon (R-Coral Springs) allows these inspectors, as well as appraisers and real estate brokers and sales associates, to take distance learning courses to satisfy pre-license and post-license requirements. A grandfather clause allows some inspectors to get a license without taking the course, providing they’ve conducted at least 120 previous inspections over the past three years.• More housing choices for individuals with disabilities. SB 1166 by Sen. Thad Altman (R-Melbourne) removes, among other things, a requirement that community residential homes for disabled persons be located 1,000 feet from each other within planned residential communities.© 2010 Florida Realtors®