Same Price, Lower Cost

According to the KCM Blog, an increasing amount of research continues to build the case  that it makes great financial sense to purchase a home today.

Whether it be rent vs. buy ratios, income-to-price ratios or income-to-mortgage payment ratios, purchasing a home right now is a bargain compared to historic norms. Now we want to look at the COST of a home today compared to pre-peak prices.

According to the most recent S&P Case Shiller price index, residential real estate values have returned to 2003 1Q PRICEs. That, in itself, says something. However, when you factor in mortgage rates, the case for buying a home today becomes even more compelling.

In 2003, 30 year mortgage rates stood at 5.88%. Today, they are 4%. How does that impact the actual COST of a home? On a home purchased for $250,000, here is the difference in monthly cost:

That means you’re saving $285.30 a month, $3,423.60 a year and $102,708 over the life of a 30 year mortgage.

You buy the home for the same PRICE but the COST is over $100,000 less.

Maybe this is why so many financial advisors are saying that this could be one of the greatest times in history to purchase a home.

Does Moving Up Make Sense?

Thinking about trading in your home for a bigger and better version? For those of you interested in moving onward and upward (now or at some point in the future), there’s a few important things you’ll probably want to consider.  To help you decide whether or not you’re ready to trade up, Realtor Magazine put together some questions you should ask yourself before pulling the trigger. If you answer yes to most of the questions, it’s a sign that you may be ready to move.

  1. Have you built substantial equity in your current home? Look at your annual mortgage statement or call your lender to find out. Usually, you don’t build up much equity in the first few years of your mortgage, as monthly payments are mostly interest, but if you’ve owned your home for five or more years, you may have significant, unrealized gains.
  2. Has your income or financial situation improved? If you’re making more money, you may be able to afford higher mortgage payments and cover the costs of moving.
  3. Have you outgrown your neighborhood? The neighborhood you pick for your first home might not be the same neighborhood you want to settle down in for good. For example, you may have realized that you’d like to be closer to your job or live in a better school district.
  4. Are there reasons why you can’t remodel or add on? Sometimes you can create a bigger home by adding a new room or building up. But if your property isn’t large enough, your municipality doesn’t allow it, or you’re simply not interested in remodeling, then moving to a bigger home may be your best option.
  5. Are you comfortable moving in the current housing market? If your market is hot, your home may sell quickly and for top dollar, but the home you buy also will be more expensive. If your market is slow, finding a buyer may take longer, but you’ll have more selection and better pricing as you seek your new home.
  6. Are interest rates attractive? A low rate not only helps you buy a larger home, but also makes it easier to find a buyer.

Healthcare Bill Adding 3.8% Sales Tax to Homes?

Recently there’s been a lot of chatter about a supposed 3.8% real estate sales tax to be implemented in 2013 under the new healthcare bill.  We looked to what other experts are saying about it and as it turns out, the rumors are indeed, JUST RUMORS.

Factcheck.com set the record straight:

“The truth is that only a tiny percentage of home sellers will pay the tax. First of all, only those with incomes over $200,000 a year ($250,000 for married couples filing jointly) will be subject to it. And even for those who have such high incomes, the tax still won’t apply to the first $250,000 on profits from the sale of a personal residence — or to the first $500,000 in the case of a married couple selling their home.

It’s easy to see how the misconception started. Written in highly technical language that only a qualified tax expert would understand, the bill says, “The tax falls on ‘net gain … attributable to the disposition of property.’”  Which would include the sale of a home.

“The bill also says the tax falls only on that portion of any gain that is ‘taken into account in computing taxable income’ under the existing tax code. And the fact is, the first $250,000 in profit on the sale of a primary residence (or $500,000 in the case of a married couple) is excluded from taxable income already.” Note: Exclusion does not apply to vacation homes or rental properties.

Factcheck.com further explains:

The Joint Committee on Taxation, the group of nonpartisan tax experts that Congress relies on to analyze tax proposals, underscores this in a footnote on page 135 of its report on the bill. The note states: ‘Gross income does not include … excluded gain from the sale of a principal residence.’

 

And just to be sure, we checked with William Ahern, director of policy and communications for the nonprofit, pro-business Tax Foundation. ‘Some home sales would see a tax increase under this bill,’ Ahern told us, ‘but it would have to be a second home or a principal residence generating [a gain of] more than $250,000 ($500,000 for a couple).’

 

The Internal Revenue Service says that to qualify for the $250,000/$500,000 exclusion, a seller must have owned the home and lived there as the seller’s ‘main home’ for at least two years out of the five years prior to the sale.

According to Sara Orrange, Government Affairs Director, Spokane Association of REALTORS, “Most people who sell their homes will not be impacted by these new regulations. This is not a new tax on every seller, and that correction needs to be made.”

And there you have it.  We hope this helped to shed some light the issue. Remember, when it comes to IRS regulations, you should check with your accountant for the most accurate and up-to-date information.