Comfy Retirements Are at Risk
The following article just popped up in my Realtor Online Magazine. I think that this article is missing two points. The first is that baby boomers who are now starting to retire have to change they way they think. Meaning, they have been a part of a generation of "newness" and have the money to attain that. If they are careful with the way they spend their money, they can still find wealth in real estate (that is to say, if they downsize their mortgage when they downsize their home). The second big missing is that regardless if they are losing x% of projected wealth because of the current housing market, where would they be if they had not bought into real estate at all? Exactly. A little less wealth but still wealthier is better than no wealth at all. In my personal situation, in this 'housing slump', I have still managed to make $45K in 1.5 years of owning my home on Capitol Hill. The investment opportunity is still out there. You just have to be smart about it. Now on to the article:
The decline in home values has reduced the prospect of comfortable retirements for the majority of near retirees, according to a new report from the Center for Economic and Policy Research (CEPR) .
The study analyzed the wealth holdings of families headed by people between the ages of 45 and 54 in 2004 and projected the wealth of these families in 2009. The report predicts that if house prices were to stay the same through 2009, the median household would have 24.7 percent less wealth than the median household in this age group in 2004.
If real house prices fall 10 percent, the median household would see a 34.6 percent loss in wealth compared with the median in 2004 and a 45.6 percent falloff if prices fall by 20 percent.
“This extraordinary destruction of wealth will have tremendous implications for millions of families as they enter retirement,” wrote report co-author Dean Baker. “Coupled with a very low personal savings rate, this means that many people will only have Social Security and Medicare to rely on in their retirement."
Source: Center for Economic and Policy Research (06/24/2008)
Home-Value Web Sites Miss the Mark
Online home-value sites offer some useful tools, but their estimates are often wrong.
"The percentage of error on these estimates is still very large," says Delores Conway, director of the Casden Forecast at the University of Southern California Lusk Center for Real Estate. If there are not many comparable sales in one area, for example, she says, "the estimates will have huge errors in them."
Zillow.com and Cyberhomes.com rely on computer-generated automated models to estimate values. The models help compensate for the fact that many neighborhoods don’t have enough sales to generate accurate values based on experience.
But these computer models don’t reflect home condition, improvements and may not even accurately convey property descriptions.
Marty Frame, general manager of Cyberhomes.com, says the data on the site is best used as a way to form an overall impression of a neighborhood.
"Our goal is to provide you all this information and let you cherry-pick the things that are most interesting to you," Frame says. "You're going to look at an estimate and say, "that makes sense' or 'that doesn't make any sense."'
Source: The Associated Press (06/23/2008)
A Commonly Missed Tax Break
This is a little late, but keep in mind for "next time". If you are currently paying an assessment on your condo, you can deduct this on your taxes! Make sure to keep records of anything paid to your association that is above & beyond your regular dues!
Condominium or cooperative residents often miss the fact that upgrades to the common areas of communities can affect the amount of tax an owner pays when the home is sold.
If the property is a principal residence and the owner has lived in it for two of the previous five years before the sale, a big chunk of the profit is already exempt from federal tax — $250,000 for a single person and $500,000 for a married couple.
But the seller will owe taxes on any profit beyond that, and he will owe taxes on the whole amount if the property isn’t a primary residence.
A proportional share of the amounts spent by the condo or cooperative association on improvements to the property — not simple maintenance — can be added to the amount paid for the property, or in tax lingo, “the basis.” The basis is subtracted from the sales price to determine any taxable profit.
“It surprises me that many community association owners are not aware of this tax benefit. Particularly for older home owners who have watched real estate profit build up over many years and now have a profit of more than $500,000, every dollar of capital improvements they can document is valuable,” says Benny L. Kass, real estate attorney.
Source: The Washington Post, Benny L. Kass (06/21/2008)
Gas prices will make you rethink where you live
My friend forwarded me this article today on Suburban Sprawl and I thought it brought up some great points.
Until Washington's transportation system is up and functioning, commuters are going to soon find that the burning hole in their pockets from recent hikes in gas prices can quite honestly be more painful than a slightly higher mortgage payment living in-city (or closer to their workplace).
More on the Gas issue:
High Gas Prices Get More Buyers Moving In
A survey of 900 Coldwell Banker associates reports that 96 percent think rising gas prices concern their clients and 78 percent say higher fuel costs are increasing buyers’ appetite for city living.
Homes in cities and neighborhoods that require long commutes and don't provide enough public transportation alternatives are falling in value more quickly than those in more central locations, according to a May study by CEOs for Cities, a network of U.S. urban leaders.
In Atlanta, Mike Wright, an associate with Prudential Georgia Realty, says that real estate within the city perimeter has been selling better than properties outside the city, reflecting a trend of people moving "closer-in."
In Florida, real estate professor Bill Weaver sees this as possibly the beginning of a shift to a more European approach to finding homes.
"Transportation costs in Europe have been so high for so long that they already take transportation into account when they buy a home," Weaver says. "We've just been behind on that. In that regard, you might look at high gas prices as sort of a silver lining."
Source: The Associated Press, Adrian Sainz (06/18/08)
May Market Data
Where Obama and McCain stand on Housing 6.5.08
This just in from the latest Realtor Magazine Online:
"As the race for the presidency shapes up as a contest between Sen. John McCain, the presumptive Republican nominee, and Sen. Barack Obama, who claims the Democratic nomination, here are their initial positions on housing and related economic issues.
McCain:
1. Proposes to spend up to $10 billion to allow some homeowners to trade high-interest, adjustable-rate mortgages for fixed-rate loans.
2. Proposes a suspension of the 18.4-cent federal gas tax and 24.4-cent diesel tax during the summer.
3. Supports a middle-class tax cut by doubling the personal tax exemption for dependents to $7,000.
4. Calls for a simpler tax system with two tax rates and a generous standard deduction.
5. Supports making permanent the 2001 and 2003 income tax cuts and proposes cutting the corporate tax rate to 25 percent from 35 percent and allowing businesses to immediately write off capital expenses.
6. Believes government assistance to the banking system should focus on preventing systemic risk that would endanger the financial system and the economy.
Obama:
1. Calls for greater government regulation of the U.S. financial system and proposes a new $30 billion economic stimulus plan to help homeowners, including a $10 billion foreclosure prevention fund to help people keep their homes and $10 billion in relief for state and local governments hit hardest by the housing crisis.
2. Outlines six "core principles for reform" that would give the Federal Reserve supervisory authority over any financial institution to which it might make credit available and calls for reform and streamlining of financial regulatory agencies.
3. Wants to repeal a provision in the bankruptcy law so ordinary families can modify terms of home mortgages.
4. Proposes a 10 percent mortgage tax credit for middle-class Americans."
Source: Reuters News (06/04/2008)
Craigslist but for RENTALS 6.3.08
DailyCandy alerted me to this awesome new website called Zilok. It's like, if you can't sell the stuff, try renting it! At least your dustcollectors have the potential of making you some money. I'm so going to try this out. But first people need to hear about it. so please spread the word. there are only about 7 items up for rent (including a car) in the Seattle vicinity.
Forbes is loving us! 6.3.08
According to Forbes magazine, Seattle ranks 10th in Best Cities for Home Sellers. The determining factors for a premier city for home sellers are: job growth, new construction, vacancy rates, and credit availability. The top ten cities – out of the country's 40 largest metro areas – are: 1) San Jose (tough regulatory environment, new construction dropped 63 percent last year); 2) San Francisco (easier credit due to conforming loan limit increase from $417,000 to the maximum $729,750); 3) Salt Lake City (3 percent annual job growth rate, declining inventory and decline in new construction); 4) Austin (nation's fastest gob growth at 4.1 percent coupled with relatively affordable housing stock); 5) Kansas City (number of unsold, vacant homes dropped by 40 percent last year); 6) San Antonio (job growth of 3 percent and construction starts have dropped by 42 percent); 7) Denver (49 percent drop in construction starts paired with the 2 percent rise in new jobs; 8) Providence (vacancy rates at 1.6 percent and a 42 percent cut in inventory); 9) Charlotte (moderate prices and strong job growth; **10) Seattle (strong job growth and a 42 percent decrease in new home construction). **
Seattle Ranks 8th best of Top 10 Recession-Proof Cities. 6.3.08
Median home price: +1.2%
Unemployment: 4.3% (from 4.5%)
Key growth: Leisure and hospitality, 4.1%; manufacturing, +2.6%
The region around Puget Sound is home to Microsoft, Amazon.com, Starbucks, Costco, Nordstrom and Washington Mutual. What's more, home prices are only half that in the San Francisco Bay Area, and unemployment in the region is falling. Of the 50 largest metropolitan statistical areas in the U.S., Seattle had the strongest growth in manufacturing in the past year.
The above is an excerpt from Forbe’s online article “America’s Recession-Proof Cities” (April 29, 2008)
How to Read Real Estate. 6.3.08
When reading up on real estate, make sure you find analysis at the most granular level possible. Sure it is always great to know the big picture, but while nationally the housing market is seeing home prices "falling at their fastest pace in at least 20 years" (USAToday, 5.29.08), locally we are still plugging along.
The following April YTD Statistics are from the Northwest Multiple Listing Service:
Median Price Home (Residential & Condo):
King County: $400,000 TY vs. $395,950 LY (Average Time on Market: 76 days TY vs. 56 days LY) +1.0%
Snohomish: $335,000 TY vs. $348,964 LY (Average Time on Market: 92 days TY vs. 64 days LY) (-4.0%)
Pierce: $260,000 TY vs. $273,997 LY (Average Time on Market: 97 days TY vs. 84 days LY) (-5.1%)
