Good News on Housing

October 5, 2012

The housing market is coming back.

 

S&P’s Case-Shiller home price index of 20 major metropolitan real estate markets for July is out today, and the good news is both broad and deep. Prices were up 5.9% for the first seven months of the year, their largest year-to-date gain in seven years, and significantly better than increases in 2011 (0.4%) and 2010 (2.1%). Prices rose in 16 of 20 markets compared with a year ago, and while they’re still 30% off their 2006 peak, it’s important to remember how inflated those 2006 prices were.

 

Even better is the depth of the improvement, as prices increased even in the cheapest homes. The gap between price gains in the high end of the market and the low end has narrowed, and the bulk of the gains come from the bottom and middle tiers. Even though four of the 20 Case-Shiller markets aren’t showing the gains, and Atlanta in particular is lagging, the trend is undeniably positive. Reinforcing it are data that show single-family housing starts well ahead of last year’s pace, existing home sales are up, the inventory of homes for sale is down, and foreclosure activity is slowing.

 

Rising home prices increase the net worth of home owners. And, as a result, the improved balance sheet has a psychological impact, causing people to feel better about their situation, and this reduces frugality. If their home price increase allows them to refinance at lower rates, the impact is multiplied.

 

There’s more. The Conference Board recently reported that its consumer confidence index rose in September to its highest level since February. Remember that consumer purchasing drives 70% of the American economy and it dovetails nicely with renewed optimism; the number was well above August’s level and also well above economists’ expectations.

 

Are we finally seeing the beginnings of a self-sustaining recovery, where the trends reinforce one another and a pattern of economic growth becomes clear? It’s still too early to tell, but it’s not too early to be cautiously optimistic. Growth won’t be a straight line up and there are other important economic factors to deal with, like job growth, but it is encouraging to finally see progress in home prices.

 

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Vacation Properties and Income – Part 2

September 14, 2010

Another way for retirees to generate income from a vacation home is to sell it. By using the federal capital gains exclusion in conjunction with the sale of your primary residence, you can potentially realize tax-free income. Here’s how it works. The basic capital gains exclusion rules state that you must have owned and used the home as your primary residence for at least two years out of the five-year period ending on the date of the sale. If you are married, the full $500,000 exclusion ($250,000 for single homeowners) is available as long as one or both of you satisfies the ownership test (two years) and you both satisfy the use test (primary residence).


Vacation Properties and Income – Part 1

September 9, 2010

If you have a vacation home, you’re already aware of the enjoyment it provides and the benefits it can offer at tax time. But you may not be aware of how vacation property can be used to generate income in retirement or how it can play into an estate plan. In fact, vacation properties offer retirees a number of different options in managing their finances and estate.
Vacation property may be used to generate income in several different ways. The first, and most obvious, is renting it. The IRS allows you to deduct mortgage interest on your primary residence and one additional property up to a limit of $1 million in combined mortgage debt for mortgages taken out after 1987. Current tax rules also allow you to rent out a second home for up to 14 days per year without having to report the rent as income. If you rent for more than 14 days, the home is considered investment property, and rent must be reported as income. Converting the property to an investment property, however, allows you to deduct rental expenses, such as insurance and utilities, if you have a net profit on the property (deductions are limited if you report a loss). You can still use an income-producing property for personal use while maintaining your tax advantages — but only for the greater of 14 days or 10 percent of the total days it is rented. Maintenance days do not count as personal-use days, but use by in-laws or other part-owners does, even if rent is charged.


A Debt like No Other

August 17, 2010

If you have incurred inefficient debt, one method of eliminating it is to transfer the debt to your home equity. Many people are reluctant to use their home equity to consolidate other debt. This reluctance really stems from a mind-set that is behind the times. Certainly, 30 years ago, if people refinanced their home or took out a second mortgage, you can be sure the neighbors were talking behind their backs about their financial woes. But using your home’s equity is economically wise. It provides low interest rates, a tax deduction, and an extended amortization.

However, even this form of debt should not be used recklessly. Defaulting on a mortgage of any kind has greater consequences than defaulting on consumer loans. Mortgage loans are secured by your home, which means that if you can’t make payments, you will lose your home. Consumer credit lenders cannot take such drastic remedies.

Avoid all other kinds of debt, including the high-risk debt of stock margin purchases and stock and commodity options. Leave those investments to the professional gamblers. Otherwise, buy only what you can pay for with cash.


Final Words on Debt

September 29, 2009

If you have incurred inefficient debt, one method of eliminating It is to transfer the debt to your home equity. Many people are reluctant to use their home equity to consolidate other debt. This reluctance really stems from a mind-set that is behind the times. Certainly, 30 years ago, if people refinanced their home or took out a second mortgage, you can be sure the neighbors were talking behind their backs about their financial woes. But using your home’s equity is economically wise.

It provides low Interest rates, a tax deduction, and an extended amortization.

However, even this form of debt should not be used recklessly. Defaulting on a mortgage of any kind has greater consequences than defaulting on consumer loans. Mortgage loans are secured by your home, which means that if you can’t make payments, you will lose your home. Consumer credit lenders cannot take such drastic remedies.

Avoid all other kinds of debt, including the high-risk debt of stock margin purchases and stock and commodity options. Leave those investments to the professional gamblers. Otherwise, buy only what you can pay for with cash.

Final words on debt. When to use it: rarely. How to use it: to increase your net worth or long-term quality of life, not to buy more things…


Vacation Properties and Income – Part 2

September 14, 2009

Another way for retirees to generate income from a vacation home is to sell it. By using the federal capital gains exclusion in conjunction with the sale of your primary residence, you can potentially realize tax-free income. Here’s how it works. The basic capital gains exclusion rules state that you must have owned and used the home as your primary residence for at least two years out of the five-year period ending on the date of the sale. If you are married, the full $500,000 exclusion ($250,000 for single homeowners) is available as long as one or both of you satisfies the ownership test (two years) and you both satisfy the use test (primary residence).


Vacation Properties and Income – Part 1

September 10, 2009

If you have a vacation home, you’re already aware of the enjoyment it provides and the benefits it can offer at tax time. But you may not be aware of how vacation property can be used to generate income in retirement or how it can play into an estate plan. In fact, vacation properties offer retirees a number of different options in managing their finances and estate.
Vacation property may be used to generate income in several different ways. The first, and most obvious, is renting it. The IRS allows you to deduct mortgage interest on your primary residence and one additional property up to a limit of $1 million in combined mortgage debt for mortgages taken out after 1987. Current tax rules also allow you to rent out a second home for up to 14 days per year without having to report the rent as income. If you rent for more than 14 days, the home is considered investment property, and rent must be reported as income. Converting the property to an investment property, however, allows you to deduct rental expenses, such as insurance and utilities, if you have a net profit on the property (deductions are limited if you report a loss). You can still use an income-producing property for personal use while maintaining your tax advantages — but only for the greater of 14 days or 10 percent of the total days it is rented. Maintenance days do not count as personal-use days, but use by in-laws or other part-owners does, even if rent is charged.