Real estate is the largest asset class in the world, with residential real estate alone valued at $162 trillion. The median price of a new home in the U.S. reached $323,000 in January 2018, according to 2017 U.S. Census data, and the value of housing stocks continue to rise. If you’re looking to invest, or are considering getting into house-flipping, the cost alone can be a huge barrier—but cryptocurrency may make it easier.
How Cryptocurrency Is Changing Investing
When Bitcoin was first introduced in 2009 it was the first of its kind, but now, 1,500 cryptocurrencies (and counting) exist on over 200 exchanges. Cryptocurrencies continue to grow in value and are branching out to more industries, including real estate.
Transactional currencies like Bitcoin are designed to be used as money, and can be exchanged for other currencies—either different cryptocurrencies or fiat money; however, a new type of crypto coin called security tokens offer users a way to invest and share profits with the anonymity and security of cryptocurrency, but backed by real-world assets like real estate.
With the decentralized security of blockchain technology, transactions, titles and all other records are public and safe from error or misrepresentation. Fraud is much less likely, and ownership shares become more accessible to small investors from all backgrounds. Blockchain is even being tested as a way to prove ownership of real estate assets, in lieu of a traditional title or deed.
Diversify With Cryptocurrency
Cryptocurrencies can offer investors a chance to diversify their portfolio. Cryptocurrency funds that are backed by real estate assets experience less price volatility than other cryptocurrencies, thanks to the relative stability of the housing market. By supporting fractional ownership, investors are able to enter the real estate market without needing to make large investments.
In 2017, 207,088 single-family homes and condos were flipped in the U.S., for a total $46.3 billion. Two-thirds of Americans believe flipping houses is a great way to make money, and even more wish real estate investment was easier, according to a 2017 RealtyShares Real Estate Investing Survey. With crowdfunding through cryptocurrency, it’s easier than ever before.
How to Invest With Cryptocurrency
An ICO, or initial coin offering, is a means of crowdfunding. When investing in an ICO, investors use fiat money or other cryptocurrencies to purchase coin at a predetermined, static value. Once the ICO period has ended, the value of the coin may rise or fall.
When a real-world asset, like a house, is funded through cryptocurrency, its value is converted into security tokens that prove each holder’s fraction of ownership in the asset. Investors can purchase these tokens during the ICO period to crowdfund a house flip or other investment purchase. Whether you’re investing in a pool of assets or a single home purchase through cryptocurrency, the tokens may be traded at any time, once the ICO has ended.
Token-ization of real-world assets makes it fast and easy to split the shares among many investors and removes the hassle of making legal agreements and organizing many different transactions. If you choose to invest in token-ized real estate, you can still get the benefits of a professionally managed portfolio, along with the relative stability of the housing market. These asset-backed pools are safe for hands-off investors, because they combine the stability of real-world assets with the security of blockchain and cryptocurrency.
Source, Rismedia.com by Brian Wallace
The Federal Reserve carried out its first hike of 2018 on Wednesday, increasing interest rates one-quarter percentage point and leaving open the possibility of more raises this year. The action was anticipated by the market, which has been on a robust—and, at times, rollercoaster—run.
“In view of realized and expected labor market conditions and inflation, the [Federal Open Market] Committee decided to raise the target range for the federal funds rate to 1-1/2 to 1-3/4 percent,” according to a Fed statement. “The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.”
The decision is the first under Fed Chair Jerome Powell, and follows growing wages and a heaping of jobs introduced to the labor pool.
Analysts are divided on exactly how many increases will occur this year. Many expect the Fed to limit it at three; others, accounting for inflation pressures and the recent stimulus, are entertaining the idea of four.
What does the hike mean for mortgage rates? Borrowing costs can grow. According to Freddie Mac, the average 30-year, fixed mortgage rate last week was 4.44 percent—a dip from the prior week, but nonetheless on a tear. Affordability has lessened as a result.
“The tight labor market will hurry-along the Fed to raise rates,” Yun said. “Housing costs are also rising solidly and contributing to faster inflation. The one thing that could slow the pace of rate increases would be to tame housing costs through an increased supply of new homes. Not only will more home construction lead to a slower pace of rate hikes, it will also lead to faster economic growth. Let’s put greater focus on boosting home construction.”
The Fed will meet next in June.
Source: Suzanne De Vita, RISMedia.com
This year’s tax season is bringing to light taxpayer confusion surrounding The Tax Cuts and Jobs Act of 2017, which could impact homeowners in next year’s tax filing. The IRS is taking steps to clarify what the new provisions mean for the real estate industry and homeowners.
One of the most misunderstood provisions in the new tax law expires in 2026 and prohibits the deduction of interest paid on home equity lines of credit and home equity loans except when the funds are used to substantially improve the taxpayer’s home. The IRS recently issued a statement clarifying that the deduction has not been removed, but is instead available under new home improvement restrictions:
“…despite newly-enacted restrictions on home mortgages, taxpayers can often still deduct interest on a home equity loan, home equity line of credit (HELOC) or second mortgage, regardless of how the loan is labelled,” according to an IRS release.
National Association of REALTORS® (NAR) President Elizabeth Mendenhall commended the IRS on its efforts to clarify how homeowners can take advantage of the HELOC tax provision.
“The National Association of REALTORS® is pleased with the IRS announcement clarifying and confirming that under the new tax law owners can continue to deduct the interest on a home equity loan, line of credit or second mortgage when the proceeds are used to substantially improve their residence,” said Mendenhall in a statement. “There has been much confusion on this issue, and the continued deductibility will bring real benefits to those who choose to take on remodeling projects to bring more resale value to their home or gain equity that may have been lost during the downturn.”
“The National Association of Home Builders (NAHB) applauds [this] announcement by the IRS clarifying that households can take a tax deduction on a home equity loan or home equity line of credit if the loan is used for home improvements,” said Noel in a statement. “This is a major victory for remodelers and for homeowners who want to invest in their homes. NAHB has been pushing hard for this outcome since December, when The Tax Cuts and Jobs Act of 2017 was signed into law. We will continue to work with Congress and the Administration as they hammer out the details of the new tax law.”
Source: Liz Dominguez, rismedia.com
The brakes are on growing home prices, with appreciation at 6.7 percent—the lowest rate since November 2016, according to the January Zillow® Real Estate Market Report. Appreciation hit 7.6 percent in May 2017 but tempered through the year.
The deceleration could give homebuyers hope this spring, says Aaron Terrazas, senior economist at Zillow.
“Home values are still growing very quickly relative to historic norms,” Terrazas says. “After years of intense competition, some buyers may be more willing than previously to take more time with the process and to wait until the right home at the right price comes on the market, even if it’s not for several months. Removing a lot of this frenzy, especially as inventory remains incredibly tight, may prove to be good news for beleaguered buyers.”
The median, nationally, is $207,600, with 10 percent fewer inventory than in January of last year, the report shows.
“The pace of home value appreciation we experienced during much of last year was not sustainable, and a slow glide path down to a more normal appreciation rate has been expected for some time,” says Terrazas. “This slowdown is nothing to be overly concerned with—demand from homebuyers remains very high, and inventory remains tight. New-home construction is growing, providing some relief to buyers who can afford the generally high price point of new homes.”
Confidence in housing is breaking new records, soaring in January in the Fannie Mae Home Purchase Sentiment Index® (HPSI). The HPSI overall posted 89.5 in January, 3.7 percentage points higher than the month prior and 6.8 percentage points higher than the year prior.
The ascent can be attributed to homeowners recognizing sale value, says Doug Duncan, chief economist and senior vice president at Fannie Mae. Moreover, prices are rising steadily, and the belief that they will continue to do so is tracking up.
“HPSI rebounded from last month’s dip to a new survey high in January, in large part due to the spike in consumers’ net expectations that home prices will increase over the next year,” Duncan says. “Results may continue to fluctuate over the coming months as consumers sort out the implications of the newly passed tax legislation on their household finances. Over the past year, continued home price growth has helped spur a sizable increase in the net share of consumers who say it’s a good time to sell a home, but also a modest weakening in the net share who say it is a good time to buy.”
The HPSI is derived from Fannie Mae’s National Housing Survey® (NHS).
Source: Fannie Mae
Many people know home automation provides benefits to humans. With connected devices such as smart thermostats, cameras, locks and light bulbs, people can now live in more comfort, safety, security and cost savings.
But for the humans with furry or feathered friends, questions inevitably arise about home automation and pet safety. Will the smart home hurt the dog, cat, hamster or parakeet? Or will the connected devices give pets the same benefits they give humans?
The truth lies in the second question. Home automation gadgets help your pets lead healthier, safer lives. To choose the best smart products for you and your pet, follow these guidelines:
- Start With a Hub
While you could add a smart thermostat or camera to your home first, you might consider beginning with a hub. A home automation hub acts as the brain of your home, helping to integrate and manage as many or as few smart home devices as you choose. Amazon Alexa and Google Home provide voice-driven hubs, but Samsung and Apple also offer similar products. The key to choosing a home automation hub is to think about the products and services you already use, and then select the hub that works with those things.
- Prevent Pet Theft
In recent years, “dog flipping” has become increasingly common. The practice entails stealing, buying or adopting a dog before selling the dog to the highest bidder. While most of the crimes occur outside the home, you shouldn’t leave anything to chance. Protect your home and pup with a smart security system. If a stranger appears in your home’s vicinity, the system will send a notification to your smartphone, ensuring your pet stays where you want them—at home, safe and secure.
- Keep Pets Comfortable
Before programmable and smart thermostats, pet owners trusted fate. They set the temperature, headed to work and hoped their pet would stay cool or warm. Today, smart thermostats offer a much-improved scenario, adjusting as needed and allowing you control from the office if you forget to set it. By investing in one, you guarantee you come home to a happy pet, not an overheated or shivering one.
- Feed Pets on Time
You want to feed your pet at the same time, every day, but let’s face facts: life happens. A meeting runs late or you get stuck in traffic. Fortunately, your pet can still receive its favorite, healthy food on time with a smart pet feeder. You’ll want to conduct some research to find the ideal one; each feeder comes with unique features, such as remote feeding capabilities or meal timers that prevent your pet from eating too quickly.
- Give Pets Smart Doors
Dog and cat doors might have been irritants a few years ago, but the doors have gotten “smart.” Now you can set timers, as well as allow automatic exit and entry. These smart pet doors can be lifesavers during the night or a long day at work, helping your pet stay healthy and comfortable. Plus, the doors sometimes reward you with another benefit—a tighter seal that keeps heating and cooling inside the home.
Of course, the items listed here are merely the beginning of pet-friendly home automation. You could also look into smart cameras, smart doghouses, activity trackers and smart toys; however, start with the five tips detailed here. They will set you on the right foot with home automation and ensure home comfort and safety for you and your pet.
Source: by Sage Singleton, rismedia.com
Everyone loves predicting the future. What awesome surprises will the coming year hold for us in high-profile political scandals or wildly inappropriate workplace behavior? Who’s going to win the Oscars, the Super Bowl, or Miss America (go, Connecticut!). When on earth is the final season of “Game of Thrones” going to start, anyway? But truth be told, we’ve got all of this soothsaying beat by a mile: We’re setting our sights on prognosticating which housing markets will soar to new heights in 2018.
Because you care! Americans breathlessly track the up-and-down trajectory of the nation’s housing markets these days, the way previous generations obsessed over stock prices, NBA rankings, or Furby sales. Give the credit (or blame) to skittishness over the last decade’s housing crash, or the roller-coaster ride of home pricing, or maybe even the ascension of HGTV flipping shows. But real estate matters: The fortunes of cities rise and fall, sometimes quickly, other times in agonizing slo-mo. And the last thing you want to do with the biggest investment of your life is buy into a housing market that is heading in the wrong direction.
What are the hot markets where you can still afford to buy? Which are ones where home prices are almost certain to appreciate? The ones with burgeoning economies and lots of job growth? The ones where you actually want to live?
To determine our predictions for the best real estate markets of 2018, realtor.com’s® economic data team took a look at the number of sales of existing homes and their prices, along with the amount of new home construction in the 100 largest markets. We also analyzed the local economies of each area, along with population trends, unemployment rates, median household incomes, and other factors.
“People are going to continue to seek out pockets of affordability that remain in the market,” says Danielle Hale, chief economist of realtor.com. “A lot of these places are more affordable than surrounding areas, yet still have strong economies. Even though prices are expected to grow, most of these markets will still remain relatively affordable in 2018.”
So which will be the hottest markets in 2018? Be prepared for some surprises.
1. Las Vegas, NV
Median home price: $285,045
Predicted sales growth: 4.9%
Predicted price growth: 6.9%
The future of Las Vegas is eye-searingly bright—and it’s not just because of all those lights on the Strip.
The economy of the once-downtrodden Sin City is expected to grow about 8.7% in 2018—compared with 6.4% for the rest of the top 100 markets, according to realtor.com. That means a lot of people moving in, moving up, and looking for places to live.
Things weren’t always so rosy. Vegas was devastated by the financial crisis of the late 2000s and the wave of foreclosures that followed.
“We like to say we were ground zero for the Great Recession: We fell further than many other metros,” says Stephen Miller, director of the Center for Business and Economic Research at the University of Nevada, Las Vegas. “So we had more ground to cover to catch up.”
One of the things drawing folks to settle down and stay in Vegas, long after their 72-hour bender has become a distant memory, is the city’s still striking affordability.
“Our [home] prices are lower than nearly every major Western metro area,” Miller says. “People in California are retiring and selling their houses and moving [in]. … They want a lower cost of living.”
With the influx of new residents and the return of buyers who lost their homes to foreclosures, well-priced homes in good neighborhoods are practically flying off the market, says local real estate broker Bryan Kyle of First Serve Realty. Low interest rates are also luring more buyers.
“What keeps this market as hot as it is right now is the lack of inventory,” Kyle says. Those shortages may be exacerbated by still-underwater homeowners reluctant to plant a For Sale sign in their yard until their equity recovers. But there are fewer of those properties today as prices continue to nudge up.
2. Dallas, TX
Median home price: $339,300
Predicted sales growth: 6%
Predicted price growth: 5.6%
This oil town is pumping, thanks to a steady flow of companies relocating, expanding, or opening up in the region. Those firms are attracted to the low taxes and cost of living. And that’s brought busloads and planes filled with new residents searching for For Sale signs.
For example, Toyota recently moved its North American headquarters to nearby Plano—and asked about 4,000 of its California, Kentucky, and New York employees to come along for the ride. Those transplants and their families all need roofs over their heads.
“Most of the houses that are being sold right now are new-built, and the builders can’t keep up,” says Yolanda Dittmar, a local real estate broker at Dittmar Realty. With the rising prices, existing homeowners are reluctant to part with their abodes and trade up.
“It’s going to cost them a lot more money to sell their house and buy another in the same area they’re living in,” she says.
Existing homes in good shape in good neighborhoods will set buyers back about $500,000 in the city limits, she says. New homes run between $700,000 and $2 million. In the suburbs, they’re a bit less, about $350,000 for an existing abode and over $400,000 for a new one.
However, prices are beginning to dip about 10% to 15% for a mid-priced residence, she says. Simple reason: Some of these properties may have been overpriced.
3. Deltona, FL
Median home price: $275,050
Predicted sales growth: 5.5%
Predicted price growth: 6%
Deltona’s location, sandwiched about 30 minutes between Orlando and Daytona Beach, is tough to beat.
In fact, many folks work in Orlando and commute from Deltona, where prices are still significantly cheaper. The median home price in Deltona’s city limits (as opposed to the greater metro area referenced by the figure above) is $159,000, according to realtor.com data, vs. $269,000 in Orlando.
The city is still clawing its way back from the recession. The metro’s economy is expected to grow about 8.3%, while employment is to increase by about 2.9%, according to realtor.com.
Investors have helped boost this market. When prices were their lowest, they scooped up whatever single-family houses they could get deals on, fixed and flipped them, or rented them out. More of those redone rentals are now going on the market, says Stephanie Agosto, a local real estate agent at NextHome Professionals. Those homes, with their many renovations, are selling at a premium.
But it’s only in the past year or so that Agosto has seen prices begin to rise.
“You can still get more for your money in Deltona,” she says.
4. Stockton, CA
Median home price: $385,050
Predicted sales growth: 4.6%
Predicted price growth: 6.4%
Crime-plagued Stockton, far from the California coast, doesn’t exactly have the best rep. It’s not known for being an economic powerhouse. But it’s becoming the place to be.
Buyers can get score a home in Stockton proper for a median $285,000—less than a quarter of what they’d pay in San Francisco, about an hour-and-a-half away. (The median price in SF is a head-spinning $1.3 nmillion.) Priced-out Bay Area denizens are moving in for deals like this four-bedroom, two-bathroom fixer-upper for $250,000.
“Stockton is going through a revitalization,” says Jerry Patterson, a real estate at Cornerstone Real Estate. Many of the downtown’s historic buildings are being restored, and new neighborhoods are in development. “Stockton has a lot to offer, and it’s very reasonably priced.”
The area is also helped by its proximity to vineyards, near Lodi. Homes typically receive multiple offers, and the best of the bunch sell within just a few days.
“It’s pretty competitive,” Patterson says.
5. Lakeland, FL
Median home price: $224,950
Predicted sales growth: 3%
Predicted price growth: 7%
The city’s now growing, with a downtown revival and new subdivisions going up outside of the city. What a difference a few years can make: Lakeland, like many other metros on this list, was clobbered by the financial crisis.
“During the recession, there were a lot of [vacant storefronts,]” says Michelle Schaal, a local real estate agent at Keller Williams Realty. But now, she adds, the city is “starting to revitalize a lot of the old buildings on the major thoroughfares. It’s opening it up for more small businesses to move in.”
“We have a lot of fine dining restaurants, things that didn’t exist before,” she says.
These new amenities, along with lower prices, have been a draw for home buyers. In Lakeland’s city limits, the median home price is $180,000. There are also down payment-assistance programs in the area for qualified buyers that have helped to give the market a boost.
“Mostly, it’s people transferring because of job opportunities and downsizing,” she says of her clients. “Millennials are [also] starting to purchase in a big way.”
6. Salt Lake City, UT
Median home price: $360,828
Predicted sales growth: 4.6%
Predicted price growth: 4.5%
Salt Lake City is so hot that potential home buyers will likely need to duke it out with competitors.
Buyers in the city, which entered the global spotlight in 2002 when it hosted the Olympic Games, are now offering 20% to 25% above the asking price, says Kenny Parcell, real estate broker at Equity Real Estate Utah.
“You’re seeing people who are tired of paying higher taxes, or they’re tired of dealing with traffic and congestion [elsewhere]. They can sell their house in Silicon Valley and get four times the house in Salt Lake or the surrounding suburbs,” Parcell says. “We have a lot of corporations coming in, which means good-paying jobs, a good tax base, and good schools.”
Many of his clients are college students who stick around after graduation or who move back to the area after working elsewhere for a few years.
7. Charlotte, NC
Median home price: $325.045
Predicted sales growth: 6%
Predicted price growth: 3%
Similar to Dallas, much of the boom in Charlotte’s housing market is thanks to all of the out-of-staters moving in. Many of them are relocating for work, as Charlotte is a big financial hub. Others are coming there to retire, attracted by the low cost of living.
“A lot of people are wanting to move here,” says Scott Hartis, a local real estate broker with Keller Williams Realty. “We have a great climate, strong business tax incentives.”
Employment is expected to grow about 2.5% in 2018, while the population will shoot up 2.2%, predicts realtor.com’s economic team. Continued growth has made buying a home challenging.
“Sometimes properties are going under contract within a matter of hours, with multiple offers,” Harris says.
8. Colorado Springs, CO
Median home price: $375,000
Predicted sales growth: 3.1%
Predicted price growth: 5.7%
Home prices aren’t the only thing in Colorado Springs getting higher and higher. The entire state’s economy has been getting a buzz since Colorado legalized recreational marijuana in 2012. And the prices show no signs of coming down.
“I’ve met a lot of people who moved here for the marijuana,” says local real estate agent Monique Allison-Vollmer of Williams Partners. “That’s put our rental market in demand too.”
The city’s proximity to Denver, about 70 miles away, has also been a boon to its economy. Folks can work in the state capital and live in Colorado Springs for a fraction of the cost. The median price in the Denver area is $511,200—about 36% more. Builders have been capitalizing on that.
“There’s a lot of new construction,” says Allison-Vollmer. Over the summer, she would receive four to six offers per property, with offers promising $10,000 to $25,000 over the asking price. But it’s slowed down considerably since then, with prices falling just a little.
“People only make so much money,” she says.
9. Nashville, TN
Median home price: $358,501
Predicted sales growth: 1%
Predicted price growth: 7.7%
The headlines coming out of Nashville these days have little to do with which country music star dumped whom. The area has become the “It” city for the far-less famous as of late. And that’s pushing home prices to new heights.
List prices skyrocketed 89% in the last five years. Prices jumped 10.8% just this year. And the population is also rising, as more folks are moving in.
“It’s crazy,” says Lisa Peebles-Chagnon, an affiliate broker at Benchmark Realty in Nashville. Single-family homes in the best suburbs of Nashville can go for multiple offers above asking—”overnight,” she says. But homes with ambitiously high price tags are sitting on the market longer.
“We have a lot of cranes dotting the landscape. We’re joking that it’s the state bird of Tennessee,” Peebles-Chagnon says of all of the city’s new construction.
10. Tulsa, OK
Median home price: $199,586
Predicted sales growth: 7.5%
Predicted price growth: 1%
Those who dream of owning a home but have limited means shouldn’t overlook Tulsa. The Oklahoma city is the most affordable on our list, with a median price well below the nearly $275,000 national average.
The local economy is expected to increase by an impressive 7%, but employment will only rise by a measly 0.2%, according to realtor.com predictions. Rising sale prices, growing about 10.3% in the first eight months of this year, are what helped to put this metro on the list.
“It’s just a good place to live, with low crime, low cost of living, steady job availability,” says Jake Salyer, a local real estate agent with Keller Williams Preferred.
Most of his clients are older millennials and Generation Xers with families buying up homes, particularly in the suburbs. Folks can score a single-family house in a nice subdivision for far less than $250,000—without having to contend with bidding wars and multiple offers well over asking.
“It’s simply not that kind of market,” Salyer says.
Getting a mortgage today is much different than it was before the financial crisis.
Loans have to meet certain standards and there are many rules lenders and servicers have to follow. But after a shakeup in leadership at the Consumer Financial Protection Bureau (CFPB), the future of some policies is uncertain.
Here’s why: The new acting director of the CFPB, budget director Mick Mulvaney, is expected to review regulations that haven’t been finalized, and he may try to alter rules that are already in place.
Here are three policies Mulvaney could change and what adjustments to them might mean for homeowners and homebuyers. The CFPB has already announced plans to reconsider certain rules.
Home Mortgage Disclosure Act
When you apply for a mortgage, some information—including your race, ethnicity and sex—could be released to the public.
For thousands of lenders, reporting mortgage information is mandatory under the Home Mortgage Disclosure Act (HMDA). While the law has been around since 1975, the amount of data made publicly available is increasing, and not everyone is thrilled.
The mortgage industry believes that publishing so much data raises concerns about consumer privacy. And there’s no way to opt out of having your information shared, notes Richard Andreano Jr., partner at the Ballard Spahr law firm.
“They expanded the data set so much that there was a concern that if it was all made public, at what point are borrowers able to be identified using HMDA data?” asks Alexander Monterrubio, director of Regulatory Affairs at the National Association of Federally-Insured Credit Unions (NAFCU).
Consumer advocates want more information released. Doing so, they argue, protects borrowers from discriminatory lending. It also holds lenders accountable for their actions, says Jaime Weisberg, senior campaign analyst at the Association for Neighborhood & Housing Development (ANHD).
The latest HMDA requirements went into effect Jan. 1, 2018, but the CFPB, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency announced that lenders won’t be penalized for mistakes made while collecting data in 2018 or reporting it in 2019. They also won’t have to resubmit data unless errors are “material.”
The CFPB also said that it would revisit certain aspects of HMDA.
“HMDA could be made almost worthless,” says Peter Smith, a senior researcher at the Center for Responsible Lending. “We need a good body of rules to make sure lenders are playing a fair game with consumers.”
Ability-to-Repay and Qualified Mortgage Standards
Another rule that has been subject to debate is the qualified mortgage (or ability-to-repay) rule implemented in 2014. It requires most lenders to make a “good faith effort” to determine whether someone can afford a mortgage and eventually pay it back.
Critics say the new standards have kept many people, including low-income individuals, from becoming homeowners.
The CFPB is obligated to review the ability-to-pay rule since the Bureau is required to assess existing regulations within five years.
With the CFPB’s change in leadership, there may be pressure to loosen lending requirements, says Barry Zigas, director of Housing Policy at the Consumer Federation of America. There’s already a Senate bill aiming to give qualified mortgage status to loans offered by many banks and credit unions without requiring the lender to meet every condition under the ability-to-repay rule.
The bill’s supporters say it would give more consumers access to mortgages. But Zigas calls it a “dangerous effort to undermine consumer protections.” If it passes, a financial institution may legally avoid going through all of the steps lenders take to ensure borrowers can repay their loans, like considering their debt obligations, verifying income and employment history, and calculating their monthly debt-to-income ratio
In 2015, the CFPB combined the mortgage disclosure obligations required by the Truth in Lending Act and the Real Estate Settlement Procedures Act under the TILA-RESPA Integrated Disclosure (TRID) rule. One result of the TRID rule is that consumers preparing to close on a house have two documents explaining their closing costs and mortgage terms, rather than four.
While the new forms helped simplify the closing process for homebuyers, the TRID rule created other problems. For one, it could prevent buyers from closing on their homes as quickly as they want to, says Brandy Bruyere, vice president of Regulatory Compliance at NAFCU.
For many items on the disclosures, there’s little or no tolerance for last-minute changes, and lenders have had to choose between rejecting borrowers’ requests and eating additional fees.
The CFPB has worked to fix the TRID rule and clear up confusion for lenders. But it hasn’t addressed every issue, leading members of Congress to create a bill that would make additional adjustments.
“The TRID disclosures are solid, and any significant change would add additional costs and uncertainty to the closing process,” says Smith from the CRL.
Rules Won’t Change Overnight
The CFPB’s final rules can’t be modified without issuing a notice and asking the public for feedback. Take these steps to ensure your voice is heard, especially if you’re concerned about how rule changes could affect you.
Comment on any potential policy changes. When the opportunity arises, visit the CFPB’s website and comment on the rules the agency is proposing. “The CFPB doesn’t have to do what the comments say, but they have to provide a reason for not doing so to avoid the rule being struck down as arbitrary and capricious,” says Benjamin Olson, a former deputy assistant director for the Office of Regulations at the CFPB.
Contact your representative. Congressional leaders can review certain rules issued by the CFPB and potentially overturn them. That’s what happened with the CFPB’s arbitration rule. The policy would’ve made it easier for consumers to file class action lawsuits against banks, but lawmakers used their powers under the Congressional Review Act to kill it before it could take effect. Legislators are now considering the CFPB’s final rule on payday lending and may seek to repeal it.
Use the complaint database. If you’ve had issues with your mortgage lender or servicer and you’re having trouble resolving them, file a complaint with the CFPB. Typically, you’ll receive a response within 15 days. You can use the same database if you’re having problems with other financial entities, like the bank managing your checking or savings account.
If you’re looking at mortgage rates and preparing to buy a home for the first time, read reviews and do your homework before choosing a lender.
Source: rismedia.com, by Amanda Dixon
A banner year.
Another $2 trillion was added to the housing market in 2017, brought to a collective $31.8 trillion, according to a recently released report by Zillow. On an annual basis, home values increased 6.5 percent last year; values last expanded at a faster pace—8 percent—in 2013.
The additional $2 trillion, put another way, doubles Apple’s recent $900 billion valuation.
“This was a record year for home values, as the national housing stock reached record heights in 2017,” says Aaron Terrazas, senior economist at Zillow. “Strong demand from buyers and the ongoing inventory shortage keep pushing values higher, especially in some of the nation’s booming coastal markets.”
Los Angeles, New York and San Francisco were the most valuable major markets last year, at $2.7 trillion, $2.6 trillion and $1.4 trillion, respectively. No other exceeded $1 trillion. Columbus, Ohio, grew at the quickest pace, 15.1 percent, followed by San Jose, Calif., at 13.5 percent, Dallas-Fort Worth, Texas, at 12.3 percent, Seattle, Wash., at 11.7 percent, and Tampa, Fla., at 11.3 percent.
More than $485 billion, meanwhile, was spent on rent in 2017, the report shows. The figure is a 1 percent, or $4.9 billion, increase from 2016.
“Renters spent more than ever on rent this year, but the amount they spent grew at the slowest pace in recent years as more renters transitioned into homeownership and new rental supply slowed rent growth across the country,” Terrazas says.
According to Terrazas, housing this year is likely to maintain the status quo, even with changes to the tax code.
“Despite recent changes to federal tax laws that have historically made homeownership financially attractive, the long-term dynamics pushing up home values and rents are unlikely to change significantly in 2018,” Terrazas says.
A new year has started, and with it a newly enacted tax policy: the Tax Cuts and Jobs Act. While most changes will not be noticeable until consumers file their taxes in 2019, the new tax law stands to alter how consumers view homeownership incentives and could impact real estate markets across the country. Additionally, many consumers, but not all, may see a change to their paychecks by next month due to the new tax rate deductions. These are the biggest real estate-related tax policies and how they could affect homeowners.
1. Cap on Mortgage Interest Deduction
The Tax Cuts and Jobs Act reduced the limit for the mortgage interest rate deduction for new loans starting Dec. 15 to $750,000. Loans that were taken out before this date are grandfathered into the previous tax policy, which featured a $1 million cap on the deduction. Homeowners can refinance their existing mortgage balance up to $1 million while still being able to deduct the interest—the new loan cannot exceed the amount of debt being refinanced.
“Although only 1.3 percent of all U.S. mortgages are likely to be impacted by the capping of the mortgage interest deduction, it poses a risk to large urban areas with high-priced housing stock,” says realtor.com® Senior Economist Joseph Kirchner, Ph.D. “The No. 1 area with the greatest risk to its home prices and sales is Washington, D.C., followed by California, Hawaii, Massachusetts and New York.”
Some tax experts state that the overall impact of these changes will not be seen until current homeowners sell, in which case the purchased property would come under the new regulations.
“Most estimates suggest that by limiting some buyers’ purchasing power, capping the deduction could contribute to slower home value growth in the priciest communities, moderating the gains longtime homeowners can expect when they do eventually sell,” says Alexander Casey, Zillow Group Policy Advisor.
2. New SALT Deduction Limit
In the final bill, taxpayers can itemize deductions up to $10,000 for their total state and local property taxes and income or sales taxes. The cap is the same for both individual and married filers.
“Households that pay more than $10,000 in combined state and local taxes each year will be impacted by the new SALT limits,” Casey says. “On one hand, taxpayers who still itemize deductions and whose total state and local tax liability exceeds $10,000 will get a smaller tax break; however, for other households, the continued availability of those deductions, even if they are capped, may be the deciding factor between whether or not they itemize deductions. This matters a lot in areas where SALT deductions were a relatively more significant reason for itemizing—areas with lower home prices, but higher taxes (e.g., upstate New York, Southern New Jersey, Inland California).”
In the previous law, the SALT deduction was unlimited.
3. Preserved Exclusion of Capital Gains
This tax policy remains unchanged from the previous law, which stated that homeowners must live in their home for two out of the past five years in order to qualify for the exclusion.
“About 10 percent of home sellers last year sold their home after living in it between two and five years,” says Casey. “Keeping the status quo means these sellers no longer need to make that difficult choice, and can instead feel more free to list their home on a more flexible schedule without fear of a potentially hefty tax hit.”
The Senate bill proposed an increase to the residency requirement to five years of the past eight, but it did not pass to the final version.
“Today, homeownership is imperative for middle-class wealth-building and financial stability,” says Kirchner. “It allows people to invest in a long-term asset that pads their retirement savings, provides a safety net for unforeseen circumstances, and equity to back investment in education or small business. The survival of the capital gains exclusion means that the advantages of this type of investment will remain (except, of course, with regard to impact of changes to deductions).”
4. Deductibility on Home Equity Loans
The new law states that taxpayers will no longer be able to deduct interest paid on home equity loans beginning in 2018, unless the funds are being used to significantly improve the residence. This provision expires in 2026, when it reverts back to the previous cap of $100,000 of home equity debt.
“Deductible interest on home equity loans used to provide homeowners another layer of financial security by giving them the ability to obtain low-cost financing,” Kirchner says. “Now, without the ability to deduct interest, owners effectively will have to pay more for their loans, which could put downward pressure on the homeownership rate.”
Casey believes the removal of this homeownership incentive will not have a dramatic impact on the homeownership rate, but will affect home renovations instead.
“A lot of personal and economic factors matter more,” Casey says. “This deduction is more important for financing major home renovations, so eliminating this deduction could contribute to underinvestment in the housing stock, making it more difficult for struggling communities to reinvent themselves.”
5. Doubling of the Standard Deduction
In the previous law, the standard deduction for single taxpayers and married couples filing jointly was $6,350. This amount is nearly doubled in the new law to $12,000. For married couples filing jointly, the previous standard deduction was $12,700, which has been increased to $24,000.
“A doubled standard deduction will have a big impact on how many homeowners ultimately decide to take advantage of the mortgage interest deduction,” says Casey. “When you combine a much larger standard deduction, with the fact that some itemized deductions have been capped or pared back, many filers may no longer find it financially advantageous to itemize deductions.”
He adds that according to Zillow’s calculations, under the current tax code, itemizing and claiming the mortgage interest deduction is financially worthwhile on an estimated 44 percent of all U.S. homes. In addition, under the new law, itemizing and claiming the MID is worthwhile on only 14.4 percent of homes nationwide.
“The doubling of the standard deduction changes the equation for homeownership incentives and essentially renders the mortgage interest rate deduction ineffective for the majority of owners,” says Kirchner. “Until now, most households did not itemize their deductions until they bought a home, which added significant tax benefits to ownership. Based on the changes to the standard deduction, this benefit will disappear for all but those homeowners who have mortgages in excess of $550,000, depending on what other deductions they have.”
Location and Timing
The impact, however, will largely be based on where taxpayers are located. Those in high-cost states may see the biggest changes in how they file, especially with the new $10,000 SALT limit. According to Zillow Research, 51 percent of Americans surveyed last year said they agree with the statement that “the property tax rate in my community is unfair to me.” These sentiments may rise in response to residents of high-tax burdened markets receiving a higher tax bill because of the new limit.
For example, Zillow analysis conducted for the Wall Street Journal states that a top income earner in New York, who owns in the top-third price range of the metro, pays an estimated $23,000 in property and state income tax every year, which is double the amount now allowed for deductions. The analysis also reported $10,000 in similar circumstances for Raleigh, N.C., and $12,000 for a Chicagoan. These are just a few areas where high-earning taxpayers would be adversely impacted by the new SALT deduction cap. According to a Wall Street Journal article, Moody’s Analytics estimates that 80 percent of counties across the country will see a negative impact on home prices in the summer of 2019.
Low-tax states, however, may benefit from the new tax code. According to the WSJ, parts of North Carolina, Alabama, Nebraska, Indiana and Tennessee may see boosts in their home prices and local economies. And the same Zillow analysis that surveyed high property and income taxes in other states says an individual in a similar financial situation would pay one-quarter of the amount in Nashville, Tenn. For those that have been on the fence about moving, the tax overhaul may be the deciding factor. But those who live in high-tax states may not see the negative impact from taxes as reason enough to leave their homes.
According to NAR research, here are the five metro areas that will be most affected by the new tax law (based on homes with mortgages valued over $750,000):
- San Jose-Sunnyvale-Santa Clara, Calif.
- San Francisco-Oakland-Hayward, Calif.
- Santa Cruz-Watsonville, Calif.
- Santa Maria-Santa Barbara, Calif.
- Urban Honolulu, Hawaii
The top five metros based on share of owners that pay over $10,000 in real estate taxes:
- New York-Newark-Jersey City, N.Y., N.J., Pa.
- Bridgeport-Stamford-Norwalk, Conn.
- Trenton, N.J. Metro Area
- San Jose-Sunnyvale-Santa Clara, Calif.
- San Francisco-Oakland-Hayward, Calif.
“Only 6 percent of homeowners have mortgages exceeding $750,000, and only 5 percent pay more than $10,000 in property taxes, but most homeowners won’t itemize under the new regime,” said NAR President Elizabeth Mendenhall in response to the bill’s passing. “While we’re pleased that important homeownership incentives such as the capital gains exclusion survived in conference, additional changes are required to truly incentivize homeownership in the tax code.”
Timing also plays a role. Many of the provisions in the Tax Cuts and Jobs Act, including individual tax cuts, expire in 2025 and therefore may lead to tax hikes in the future, according to the Distributional Analysis of the Conference Agreement for the TCJA by the Tax Policy Center. The report states that taxes would be reduced by $1,600 on average in 2018, increasing after-tax incomes by 2.2 percent; however, in 2025, the average tax cut as a share of after-tax income would decrease by 1.7 percent for most income groups.
“The tax bill decreases homeownership incentives, but these benefits are not the only factors in the homeownership decision,” Kirchner says. “In the short run, homebuyers can look forward to more money in their pocket that can be used for a down payment or larger home.”
He adds that cuts in government services and economic development programs, along with the rescinding of tax cuts for individuals in a few years and the impact of tax reform-induced deficit on inflation, will weaken the impact of the after-tax income boost on homeownership.
“The change definitely removes some of the federal government’s preferential treatment towards homeownership,” Casey says. “Ultimately, with these new reforms, households will be more likely to maximize their tax breaks with a standard deduction. And when someone uses the standard deduction, it doesn’t matter if they spent an extra $5,000 on a house, a boat or a vacation—the spending is treated the same when tax season comes.
“It will be interesting to see how the temporary nature of some of these tax cuts shake out,” says Casey. “Will those households on the edge of homeownership make decisions based on what their new take-home income is in February, or will there be some apprehension if they think their taxes will rise down the road?”
According to an NAR statement, “As a result of the changes made throughout the legislative process, NAR is now projecting slower growth in home prices of 1-3 percent in 2018 as low inventories continue to spur price gains; however, some local markets, particularly in high-cost, higher-tax areas, will likely see price declines as a result of the legislation’s new restrictions on mortgage interest and state and local taxes.”