September, 2010
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Top News
Existing Home Sales
This week is the release of the Existing Home Sales number from THE NATIONAL ASSOCIATION OF REALTORS®.
After a dip in sales in the month of July, we saw some growth in Existing Home Sales for the month of August. Existing home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, increased 7.6 percent to a seasonally adjusted annual rate of 4.13 million in August. This is up from July’s numbers which were 3.84 million. But, looking at year to year, they are down 19 percent from August of 2009, when we saw 5.1 million units.
It’s worth reminding you that the housing prices are still low, but with uncertainty in the market, it is going to take time to rebuild. Overall, The national median existing-home price for all housing types was $178,600 in August. That is up 0.8 percent from a year ago.
Housing Starts
For the first time in four months, new construction of single-family homes is on the rise. New data released this week by the commerce department shows that housing starts in that category rose 4.3 percent compared to July, although it is still 9 percent lower than it was in August of last year. Still, stocks on Wall Street rose this past week on the news, which was part of a larger 10.5 percent overall increase.
Housing starts increased in all regions of the country, except the Northeast, where they slumped by nearly a quarter. And analysts tell Marketwatch.com we are getting a more accurate picture of the market, now that the impact of the federal tax credit has dissipated.
Local Market Conditions
THE NATIONAL ASSOCIATION REALTORS® released their existing home sales figures for the month of August. Existing home sales, these are the completed transactions for single, family, townhomes, condominiums and co-ops rose 7.6% from July to August to a seasonally adjusted annual rate of 4.13 million home sales. Prices also increased from July to August. The national median existing-home sales price for all types of housing was $178,600 in August, up 0.8 percent from a year ago. While sales and prices rose, inventory, the number of homes for sale, dropped 0.6% to 3.98 million existing homes available for sale, which represents an 11.6 month supply of homes at the current sales pace.
Single-family home sales rose 7.4 percent to a seasonally adjusted annual rate of 3.62 million in August from a level of 3.37 million in July. The median existing single-family home price was $179,300 in August, up 1.2 percent from a year ago.
Single-family median existing-home prices were higher in 10 out of 19 metropolitan statistical areas in August from a year ago (the price in one of 20 tracked markets was not available). Existing single-family home sales were down in all 20 metro areas from August 2009.
Existing condominium and co-op sales increased 8.5 percent to a seasonally adjusted annual rate of 510,000 in August from 470,000 in July, but are 17.1 percent below the 615,000-unit pace in August 2009. The median existing condo price was $174,000 in August, which is 2.8 percent below a year ago.
Now let’s see how these sales break down regional.
Northeast
In the Northeast existing home sales rose 7.9 percent to an annual level of 680,000 in August. The median price in the Northeast was $260,300, up 7.6 percent from a year ago.
Midwest
The Midwest saw existing home sales increase 5% percent in August to a pace of 840,000 with a median price of $149,600, up 0.4 percent from August 2009.
South
Moving down South, kept pace with the Midwest experiencing existing-home sales gains of 5.2 percent to an annual level of 1.62 million in August, but they saw a decrease in sales price with a median price of $155,000, down 1.5 percent from a year ago.
West
Heading out West led all regions with a 13.8 percent hike to an annual pace of 990,000 in August. The median price in the West was $214,700, which is 2.5 percent below a year ago.
Capital Gains Exemption
It’s no secret that we’re pretty bullish about homeownership and truth be told, so is the U.S. government. In fact, your right to own property is listed alongside life, liberty and the pursuit of happiness in the Declaration of Independence.
Having a personal investment in the place you call home gives you a greater stake in the welfare of not only the nation, but your neighborhood as well. In most places, the taxes you pay on your property are what keep your local government in business, and the housing sector is one of the major factors in the nation’s economy. Because of that, the government gives us several tax incentives to become homeowners and right now, we’re going to discuss what may be the best one of them all – the capital gains tax exemption.
Now, you might think of this as the dessert portion of your homeowner experience, because it doesn’t come until you sell your home, and just like dessert, it can be pretty darn sweet. This exemption allows you to claim the first 250-thousand dollars in profits from the sale of your home to be tax-free. If you’re married, and you file a joint return, that exemption rises to 500-thousand dollars. A half-million dollars that you can spend any way you’d like without having to give a cut of it back to Uncle Sam.
All of this is easier said than done, of course. There are rules to all of this. The exemption applies only to your primary residence, a home that you’ve owned and lived in for at least 2 of the past 5 years. And you obviously would have to be selling in a market where profits are possible. If you’ve just bought your home in the last couple of years, the capital gains exemption is obviously not going to be that valuable right now. But for couples who have raised their families in their homes for the past 20 years, the capital gains exemption can provide a crucial nest egg for retirement.
Let’s say you bought your home in 1990 for 100-thousand dollars. Today, that home might be worth 350-thousand. If you sell it for that price, you’ve made 250-thousand dollars on the home, and you’re free to do whatever you want with that money.
That was not always the case. Prior to 1997, the only way you could avoid paying taxes on your profit was to sink it into another home within two years, while older sellers were allowed to take a once-in-a-lifetime tax exemption with a 125-thousand dollar limit. That was then and this is now.
Nowadays, as long as you follow the “2 of 5 rule” that I mentioned, living in your home as your principal residence for a total of two years out of the past five, you can continue to keep any gains that you’ve made on your property tax-free – again, up to a limit of 250-thousand dollars for individuals or 500-thousand dollars for married couples. And under the current tax laws, you’re free to do this every two years, not just once in a lifetime.
And just to show you how generous this tax break is, the government will, in some cases, still allow you to exempt some capital gains even if you don’t meet all of the rules. For example, if a new job or health problems force you to move before you’ve met all of the requirements, you could be eligible for a reduced exemption.
Before you do anything, you’re going to want to run all of this by a tax advisor, just to make sure you meet all of the requirements, and your REALTOR® can certainly put you in touch with one if you need a referral!
Given the way the economy has been acting over the past couple of years, the thought of ever realizing a 250-thousand dollar profit on your home may seem pie in the sky. But, remember, most of us are in this for the long haul, and over time, homes do appreciate in value. Once most people buy their first home, they remain homeowners up to retirement or beyond, so it’s good to know there’s a tax break waiting to reward you at the end of your long-term investment.
Homeownership & Taxes
It’s great to get those tax freebies, because, let’s face it – We already pay plenty of taxes on our homes. And, to be fair, we really need to. In most places, property taxes pay for the government services we receive, from police and fire protection, to school for our children and even the local dog catcher.
But even as we pay all of our local taxes, the federal government gives us, as homeowners, a break on our federal returns, because all of the property taxes we pay are fully deductible.
Of course, this benefit will have its greatest impact on the majority of homeowners who itemize their tax deductions, but even those of you who don’t can add 500 dollars of property tax payments to the standard deduction. If you’re married and file a joint return, you can boost that standard deduction by a thousand dollars.
The biggest, or at least, most noticeable, break you receive is on the interest you pay each month as part of your mortgage payment. All of it is fully deductible, and if you have a vacation home that you live in for at least 14 days a year, that mortgage interest is fully deductible as well.
But of course, as we’ve seen, while home ownership does offer tax benefits, it’s really a lot more than that.
Studies show that compared to renters, home owners are more likely to vote, to volunteer, and to stay put for years on end. That adds stability to a community and that’s important.
It also adds stability to the family. The children of people who own their own homes are shown to do better in school, than the children of renters.
Some studies even suggest that home owners are healthier than people who don’t own their own homes.
But there are some things you can’t measure in a study and one of them is pride. The pride of owning your own home is something that millions of Americans have experienced, something millions more experience every year when they become home owners for the first time.
Owning a home is now, and has always been, a big part of America. It’s woven into the texture of the nation. Home, is where families make memories, where neighbors make communities and a big part of where America gets its strength.
So let’s leave you now with a quote from Mark Twain, a quote that just as true now as it was a hundred years ago:
“Almost any man worthy of his salt would fight to defend his home, but no one ever heard of a man going to war for his boarding house”
Las Vegas - Bus Tour
THE NATIONAL ASSOCIATION OF REALTORS® 2011 Home Ownership Matters Bus Tour has been all across the nation...