Is 4% the new 3.5% for mortgage rates?

Mortgage interest rates have remained at historical lows for a long time now.  Sure, they have fluctuated between 3% and 3.875% for over a year, but the 4% threshold has been reached and it may not come back below it again.  The problem with low, low rates is that when the new lowest rate is seen it then becomes the benchmark that all rates are judged against.  Let's face it 4%, 5% for a mortgage are great rates, but it does reduce your buying power.

Rising rates either eliminate your from being able to buy, reduces your ability to cash-flow and investment property, or reduces the size of the home you can purchase.

Rates have now been over 4% for over a week now and seem to be stable.  There is an absolute here; We can't all wish for a better overall economy and expect mortgage rates to stay low.

When are you going to make the decision to buy?

Real estate prices have remained flat all year and demand for properties has remained high.  If the current market continues into next year we will see segments of the market in Myrtle Beach metro start to increase.  Today, it costs you more to buy a property (the same property) as it did last month because of rates.

Could the new low for mortgage rates be 4.5%?

Time will tell.  Are you willing to take the risk?

Myrtle Beach Area Real Estate Trends Update

Myrtle Beach Real Estate Growth

Market indicators point to a national real estate industry powering economic growth in many areas throughout the US. As reported by Bloomberg, the S&P/Case-Shiller index indicates that residential real estate prices have reached their highest growth rates since May of 2006 during the month of February, another indicator to a strengthening housing market.

Sticking to the national trend of the improving housing market, the Grand Strand and Myrtle Beach areas are both experiencing significant real estate growth as sales are up and pricing appears to be climbing. Both single family homes as well as condos are seeing growth and improvement from just a year ago, affirmation of a powerful housing sector in the Grand Strand area.

In February the National Association of Home Builders expanded their Improving Markets Index of  housing markets to include the Myrtle Beach area.  The IMI indicates and tracks improvements in three key areas: housing permits, employment, and home prices.  The improving markets are closely tracked for at least six consecutive months before being included on the index.  The inclusion is yet another indicator of a strengthening market.

Single-Family Home Upswing

Single family homes are experiencing considerable growth in both price and sales. Compared to this time last year, specifically the month of March, sales of single family homes are up 11.6%. This matches first quarter growth as well for 2013 versus growth during the same time frame last year. The pricing for single family homes is also up from a year ago, with numbers experiencing an $18,000 increase in price when compared to March of 2012.

Decreasing Distressed Listings

Distressed homes are properties that are under a foreclosure order or are being sold by the mortgagee and are, at times, offered to the public well-below market price. A great indicator of a growing real estate area is the number of distressed listings from year to year. An area experiencing decreasing and fewer distressed listings points to a growing economy and is a great indicator of a solid real estate environment.

Both single family homes as well as condos saw a drop in distressed listings for the month of March, with numbers showing distressed listings down 11.7% from levels seen in March of 2012. With fewer listings of these properties, new and existing homes are moving the real estate market forward, evidence of a growing national and local economy.

New developments such as The Cottages at 7th, rising prices, and the popularity of the Myrtle Beach area are all reasons you should be starting your search for your dream home soon.  Check out our free whitepaper, Myrtle Beach Real Estate: 5 Things You Should Know, to learn more about the Myrtle Beach area and better prepare yourself to find your dream home in one of the hottest destinations in the US.

Timely Tax Deductions for real estate

As the time to file income taxes approaches, we need to take a new look at the changing tax landscape for homeowners. The dynamic atmosphere in Washington, D.C. has a different effect each year on which tax breaks are proposed, rescinded, changed, and extended for taxpayers who own a home.

Thanks to the efforts of many real estate industry groups including the National Association of REALTORS®, many of the tax benefits that homeowners enjoy–which were on the chopping block over the past few months–have been protected and extended through the 2013 tax season.

Disclaimer – This is only an informational summary of current tax issues in the news. If you need tax advice, please contact a tax attorney or CPA.

1. Mortgage Interest Deduction

The mortgage interest deduction has always been the most-beloved tax benefit of home buyers in the U.S. New homeowners’ monthly mortgage payments are made up almost entirely by interest for the first few years. Their ability to deduct that interest can result in a healthy reduction in tax liability. Affordability for first-time home buyers is directly linked to their ability to deduct the interest on their mortgage.

Homeowners who itemize their deductions can deduct the interest paid on a mortgage with a balance of up to $1 million. While there is some movement to limit the total itemized deductions for taxpayers with higher incomes (over $400,000), the current deductions holds for all tax brackets. Americans save around $100 million every year by deducting mortgage interest on their tax returns.

2. Home Improvement Loan Interest Deduction

The interest on home equity loans used for “capital improvements” to a home can also be a tax deduction. On loans with balances of up to $100,000, the interest is tax-deductible for a homeowner who uses the loan to make improvements to the home such as adding square footage, upgrading the components of the home, or repairing damage from a natural disaster. Maintenance items like changing the carpet and painting a home are usually not included as capital improvement projects.

3. Private Mortgage Insurance (PMI) Deduction

Homeowners who make a down payment of less than 20 percent are usually paying some sort of Private Mortgage Insurance. PMI (sometimes abbreviated MIP or just MI), can be a few dollars to hundreds of dollars per month, and it is a large portion of many homeowners’ mortgage payments.

If your mortgage was originated after Jan 1, 2007, and you have PMI, it can be a tax deduction. The deduction is phased out, 10 percent per $1,000, for taxpayers who have an adjusted gross income between $100,000-$109,000 and those above that level do not qualify. The extension of this tax deduction in 2013 was one of many last-second saves by real estate industry advocates.

4. Mortgage Points/Origination Deduction

Homeowners who paid points on their home purchase or refinance can often deduct those points on their tax returns. Points, often called origination fees, are usually percentage-based fees which a lender charges to originate a loan. A one percent fee on a $100,000 loan would be one point, or $1,000.

On a home purchase loan, taxpayers can deduct the entirety of the points that they paid in the same year. On a refinance loan, the points must be deducted as an amortization over the life of the loan. Many taxpayers forget about this amortized benefit over time, so it’s important to keep good records on the deduction of points on a refinance.

5. Energy Efficiency Upgrades/Repairs Deduction

Homeowners can deduct the cost of the building materials used for energy efficiency upgrades to their home. This is actually a tax credit, one which is applied as a direct reduction of how much tax you owe, not just a reduction in your taxable income.

10 percent of the total bill for energy-efficient materials can be used as a tax credit, up to a maximum $500 credit. Insulation, doors, new roofs, and many other items qualify for the energy efficiency credit. There are also individual limits for certain items, such as $150 for furnaces, $200 for windows, and $300 for air conditioners and heat pumps.

6. Profit on Sale of Real Estate Deduction

If you’ve sold a home in the past year, you’re likely aware that individuals can claim up to $250,000 of profit from the sale tax-free, and married couples can claim up to $500,000 tax-free. Of course, there are some requirements to escaping the capital gains tax on this profit.

The home must be a primary residence. This means that you must have lived in the home, as your primary residence, for two of the past five years. You could rent it out for years one, three, and five, while living in it for years two and four. In this way, a homeowner could potentially claim this tax break on multiple homes within a fairly short time frame, but each tax-free sale must occur at least two years apart from the previous tax-free transaction.

7. Real Estate Selling Cost Deduction

For those lucky folks whose profits on the sale of their home might exceed the $250k/$500k limits, there are still some ways to reduce the tax burden. The costs of selling the home can be significant, and those in themselves can be claimed as tax deductions.

By adding up all of the fees paid at closing, capital improvements made to the home while you owned it, money spent to make repairs to damaged property, and marketing costs necessary to sell the home, you can add a significant figure to the cost basis of your home. This basically raises the original price you paid for the home. Your cost basis begins with the original price of the home, and then adds in the improvement and selling costs. When the new cost basis price is compared to your selling price, it reduces your potentially-taxable profit on the home significantly.

8. Home Office Deduction

The home office tax deduction is often cited as a deduction that increases your likelihood of being audited. While the raw numbers might add some credibility to that perception, it’s really the way a home office is deducted that gets some taxpayers into audit purgatory.

This deduction, when used correctly, is just as safe as any other. Homeowners deduct a percentage of their mortgage, utilities, and repair bills in direct proportion to the amount of their home that is dedicated office space.

There are a few hard and fast rules to live by when deducting the costs of your home office. The home office must be your principal place of business (the primary office location where you get the majority of your work done). It needs to be exclusively used for business (it can’t be your kitchen by day and office by night). You need to be realistic with its size and use (unless you enjoy audits).

9. Property Tax Deduction

New homeowners often don’t know that their property taxes are deductible. While it may sound strange to have a tax-deductible tax, the overall effect is that you don’t pay income tax on money that was spent on property taxes.

Homeowners should be careful to only deduct the amount of property tax actually paid to their local municipality for the year. This is not necessarily the amount you paid to your escrow account, and should not include any other city/county fees that might potentially be on the same bill as your property taxes.

10. Loan Forgiveness Deduction

The Mortgage Debt Forgiveness Relief Act of 2007 was created when short sales were becoming a new and growing part of the real estate market. An underwater homeowner might convince their lender to agree to a short sale of their home at $100,000, even though they owe $150,000 on their mortgage. While the lender forgives the extra $50,000 owed after the short sale, the government views it as $50,000 in taxable income (a gift from the lender to the borrower).

The Debt Forgiveness Act temporarily relieved the taxpayer of that burden, but was set to expire this year. Through much effort, it was extended along with many other homeowner tax relief measures this year and homeowners can continue to claim this tax relief in 2013.

IRS-suggested disclaimer: To the extent that this message or any attachment concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. This message was written to support the promotion or marketing of the transactions or matters addressed herein, and the taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.