Goodbye 2014 and Hello 2015 – Residential Real Estate Predictions

Rather than rehash, review and regurgitate 2014, we’ll do something that might be more productive and useful to you. Let’s predict the future and see what we all might anticipate for the residential real estate market in 2015. As most everyone has seen, the real estate market has shown improvement which has been catapulted forward by improvements in the economy, low mortgage rates and reduced inventory. The analysts out there are predicting that this will translate into larger gains for 2015. Everyone has tons of questions, like “What should we expect next? Will there be another real estate boom? Will the real estate market recovery be consistently steadier?” What we can tell you is that the trends from 2014 indicate a better 2015. Here are a few indicators:

1. Low Mortgage Rates: The Federal Reserve did take steps to ease lending, but despite doing this, mortgage rates continue to decline and assisted the home buyers with lowered borrowing costs. The borrower benefits continue with the 30-year fixed-rate mortgage remaining below 4 percent.

2. Economy Improvement: The beginning of the year brought the nation’s harshest winter, but despite this, the economy improved steadily and new jobs were created, resulting in a higher GDP and stronger consumer confidence.

3. Foreclosures and Short Sales Decline: To everyone’s delight, distressed sales that include foreclosures and short sales have significantly declined. The numbers don’t matter, but should you care to know, foreclosures are expected to be reduced by at least 30 percent by 2014’s close.

4. Investors Retreat From the Market: In conjunction with the reduction in distressed sales and increased median home prices, those large scale investors in the single-family market have significantly decreased. This reduction results in less competition from investors, allowing for first-time home buyers to dip their feet into the real estate market.

5. Home Prices Level Out: In 2012 and 2013, we saw some unusually high levels of home prices appreciating and it wasn’t until 2014 that we saw a leveling out of these increases. The present increases in the residential home market are more consistent with “healthy” long-term growth.

With these positive predictions for 2015, there are factors that may interfere to prevent a truly strong recovery:

1. First-Time Buyers Fear: According to the National Association REALTORS®, first-time buyers dropped to the lowest level in nearly 30 years. As we have continued to report over the past few months, however, there are signs of improvement. While these improvements are modest, the next largest home buying market, The Millennials, are starting to think about the residential real estate market. Federal policies for lenders implemented in December resulted in revised lending regulations and lower down-payments from lenders have greatly assisted in first-time home buying confidence.

2. Credit Requirement Inflexibility: Even though the mortgage rates have been historically low, homeowners have seen an inability to borrow on their homes because of lender qualification standards. Therefore, 2014 saw mortgage credit availability come to a screeching halt and did not improve.

3. Inventory is Low: Despite the small increase in inventory of residential real estate, supply did not outweigh demand. As has been reported throughout 2014, the supply of new and existing residential real estate continues to remain below “normal” expected levels.

4. New Home Startups Don’t Increase: 2014 saw that new home sales were still at the levels they were in 2013. Despite this lack of growth, new home prices continued to rise substantially in 2014. The rise in prices might indicate that the increased home prices actually put a wall up on demand.

5. Renting Rules: There continues to be record levels of renting, which seems like a likely result when home ownership continues to remain at low levels. As long as this continues, rental prices will continue to increase.

This will be the last post for the year 2014. All of us at Khani & Auerbach wish you a wonderful New Year and may 2015 bring you everything you hope for in health, happiness and peace.

Khila L. Khani, Esq.

Survey Results Indicate Home Sales to Rise in 2015

According to a Bloomberg survey of 25 economists and analysts, and after what seems like a rather disappointing year in the U.S. housing market, these experts predict that home sales will resume recovery in 2015 and anticipate an increase in sales, construction increases and mortgage credit eases.

In summary, the results indicate:

1. An increase in both new and existing home sales;
2. As a consequence of the relaxation of mortgage-lending standards, younger people who previously favored renting over buying may now consider purchasing;
3. Although the average rate for a 30-year mortgage is at its lowest level in a year and a half right now (last week 3.93 percent), rates are expected to rise to 4.725 by the end of 2015, but that won’t prevent an increase in new home and existing home sales; and
4. The median prices will continue to increase, but home-value appreciation will level off and both buyers and sellers will benefit from this more balanced market.

As they say, “slow and steady always wins the race.”

For a more detailed explanation of these results, please read the source article on Bloomberg.

Khila L. Khani, Esq.

Make Your 2014 Year-End Financial Moves Now

Make Your 2014 Year-End Financial Moves Now

You’re making time to shop, you’re making time to bake goodies and you’re doing everything you can to prepare for your time off of work or school, but have you considered year-end tax deadlines? While preparing for these year-end tax deadlines isn’t as “cool” as shopping, assuredly, it’s just as important.
While filing your taxes doesn’t become due until April 15th, there is a laundry-list of tax-related decisions that must definitely be made before the end of 2014 or they won’t apply to your 2014 tax returns. Below, we are providing a list of 11 year-end tax strategies to assist in limiting your taxable risks.

1. Defer Income: In an effort to reduce your 2014 tax burden, defer the income until 2015. This especially makes sense if you’re self-employed and if so, wait until the end of December to issue invoices. Waiting to send out invoices until later in the month will assure that you won’t receive payment until the next year and therefore, won’t have to pay taxes on that income until the following year. Expecting a big year-end bonus, tell your boss to delay the bonus until after January 1, 2015.

2. Charitable Donations: Get all your charitable donations in before the end of the year in order to claim them on your 2014 tax returns. Keep in mind that if making these donations via credit card, you can do so as late as 11:59 p.m. on December 31st for them to count in 2014. Claim it in 2014!

3. Sell the Losers to Offset the Winners: Do you have some bad investments in your portfolio? Do you have some winning investments? Referred to as “loss harvesting,” selling your bad investments to offset the profits from your winning investments is definitely something you should do BEFORE December 31, 2014. Capital gains are calculated by the IRS on a net basis year to year, so if one investment made a profit of $10,000, you can easily avoid paying taxes on a losing investment of $10,000. Capital gains taxes can be as high as 39.6%, so selling these losers is a great way to keep what you have earned in the winning investments.

4. Pay Taxes Now: Whether your taxes are due in 2014 or 2015, if you pay the 2015 taxes in 2014, you are entitled to a deduction in the year you actually paid the tax. Property taxes and estimated state taxes can be deducted on a federal tax return. In some cases, if you prepay your estimated taxes before April, you might be able to deduct that tax payment in 2014.

5. Prepay School Tuition for Spring 2015: The government allows you to deduct up to $4,000 from your taxable income through tuition payments and according to the IRS, this can include tuition for 2014, but also classes that will begin before April 1, 2015. This may be helpful to individuals who started higher education in the fall, are below the $4,000 threshold, but will be continuing education in January.

6. Gift Giving of up to $14,000: If you have the means and you want to reduce your estate tax liability, give the individual heirs of your potential estate up to $14,000 each calendar year. Slowly paying down the wealth to these relatives helps to reduce the tax burden upon death and is tax-free for you. If you have the ability, make these gifts before December ends.

7. Spend Down Your Flexible Spending Account: Your FSA, or Flexible Spending Account, are financial vehicles for putting your pretax dollars meant for qualified medical expenses and child care. These FSAs are typically offered through your employer and are a great way to reduce taxable income, but if you don’t use it, you lose it. In other words, try to schedule medical procedures and appointments before the end of the year or the funds may disappear.

8. Invest to the Max on Your 401(k): The maximum contribution that can be made into a 401(k) for 2014 is $17,500. Any deposits you make into this account can offset your taxable income for the year you make the deposit. The downside, since the money for this purpose must be taken out directly by your employer, the only way to catch up at such a late date in the year is to significantly increase payroll deduction from now until the end of 2014. If you can handle it, do it.

9. Buy Health Insurance: As you may or may not know, the Affordable Care Act, a/k/a “Obamacare,” requires every individual to have health insurance in 2014 or face a maximum penalty of $285 or up to 1% of your annual household income. If you haven’t been covered for much of 2014, it’s too late to avoid all of the penalty. But getting insurance now could reduce your burden — and most importantly, ensure you’re insulated from higher penalties in 2015. Next year, the maximum penalty is $975 per household or up to 2% of total income, whichever is greater.

10. Adjust Your Withholding for 2015: Stuck with a big tax bill in 2014? Don’t wait to reset the withholding requirements in your paycheck, but adjust your tax burdens in December that will take effect on the first of the year. Avoid the oversized tax bill in the following year by beginning to pay the withholding after New Year’s Day.

11. Take our Your Required Minimum Distributions: Are you 70.5 years or older? If so, the government requires that you draw down your tax-sheltered retirement plans, like an IRA by required minimum distributions every year. The IRS requires you take these distributions and if you don’t withdraw the minimum amount, you may be penalized as much as 50% on the sum you should have withdrawn. Inquire with your tax professional to understand the details about your specific RMD. Required minimum distributions can vary based on age and how much you have saved.

Be prepared and take action now. December 31st is right around the corner and you shouldn’t wait until the eleventh hour. We highly recommend that you consult with your tax professional to ensure that you are doing all that you can do to take advantage of every tax benefit out there. Make your 2014 tax return a delight, not a fight.

Khila L. Khani, Esq.

Foreclosure Protection Bill for Servicemembers is Extended

Foreclosure Protection Bill for Servicemembers is Extended

According to an announcement from Senator Sheldon Whitehouse (D-Rhode Island), who introduced the bill in May, the U.S. Senate and the House of Representatives have both unanimously voted to pass a bill that give military service members who have recently returned from duty added protection from foreclosure.

The announcement from Whitehouse regarding S.2404, a/k/a the Foreclosure Relief and Extension for Servicemembers Act of 2014, states that the bill unanimously passed in the Senate on Thursday, December 11 and in the House on Friday, December 12.

Previously, there was a provision that set one year as the time a servicemember’s house is protected from foreclosure upon his or her return from active duty, if the mortgage was obtained before the servicemember was an active member of the military. This new passage in the House and the Senate extends that protection until January 2016. The Commission on the National Guard and Reserves submitted a report that prompted the foreclosure protection extension from 90 days to nine months in 2008. The period was extended to nine months as part of the Servicemembers’ Civil Relief Act (SCRA) in 2008 and lengthened further to one year in 2012 as part of a bill introduced by Whitehouse.

This one-year protection period was set to expire at the end of December 2014 and would have reverted back to pre-2008 level of 90 days at the beginning of 2015. Whitehouse’s bill, introduced back in May 2014, called for the permanent adoption of the one-year foreclosure protection period.

“After fighting for our country overseas, our troops shouldn’t have to fight to keep a roof over their heads when they return home,” Whitehouse said. “Servicemembers returning from active duty often need time to regain their financial footing, particularly those in the National Guard and Reserves who give up their full-time jobs to fight for our freedom. We should ultimately pass legislation to make this protection permanent, but I’m glad we were able to secure peace of mind for our veterans for one more year.”

The SCRA includes additional protection for military members (while on active duty) and their families from auto repossessions and other personal property. Under the current law, servicemembers (on active duty) and their families cannot be evicted from housing due to nonpayment of rent that is less than $1,200 per month.

Khila L. Khani, Esq.

The Appraisal – Owners and Real Estate Appraisers

The Appraisal

No, this is not the title to my next major motion picture, however, it is a topic of much concern to the real estate industry.  In addition to being a required element in a real estate transaction with loan, it oftentimes is the factor that makes or breaks the transactions.

Back in 2006, at the height of the real estate market in the United States, real estate appraisals were footloose and fancy-free.  Everyone had their appraisers provide high appraisals and the home values became, in the words of Dr. Phil, “Out of Control!”   Once the real estate market dove deep and the Great Recession set in, the government and the lenders made a concerted effort to keep appraisers more honest and the opinions tied to reality.  It was only after the real estate crash that owners and appraisers did not see values the same way again.

Now, in 2014, several years after the initial crisis, appraisals continue to be just as important as they were before, but now the discrepancy between appraisers’ and home owners’ opinions of home values has begun narrowing. According to Quicken Loan’s Home Price Perception Index, in November, appraisers valued homes 1.56 percent higher than home owners, according to Quicken Loans’ Home Price Perception Index.

“Mortgage financing often hinges on whether the appraised value coincides with the home values agreed upon by the home buyer and seller in the case of a home purchase, and the home owner’s estimated value in the case of a refinance,” says Quicken Loans Chief Economist Bob Walters. “It is reassuring to see the gap between appraiser opinions and home owner opinions narrow, and if we had to choose a side of the fence, it makes for a much smoother mortgage process if appraisers are valuing homes above home owners’ estimates like we’re seeing, as compared to the opposite.”

Quicken Loans recently analyzed metro areas over the past three quarters and found that appraiser opinions were higher than home-owner estimates. Even within the various metro areas, the difference varies widely. For example, in San Jose, California, appraisers valued homes 6 percent higher than home owners on average, while in San Francisco, appraisers valued homes 4.35 percent higher. In Dallas, Texas, there was a 4.22 percent difference.

There were differences that resulted in lower opinions.  For example, in Kansas City, Missouri, appraisers’ opinions were found to be 2.53 percent lower than home owners’.

Nationwide, however, real estate professionals are reporting much fewer appraisal issues as the deal breaker.  These indicators are what gives buyers, investors and sellers the confidence they need to put their toes back into the water!

Khila L. Khani, Esq.