A house’s real estate for sale sign is seen in front of a home in Arlington, Virginia. The U.S. real estate market is booming even as the coronavirus crisis intensifies.
SAUL LOEB/AGENCE FRANCE-PRESSE/GETTY IMAGES
The numbers: The cost of buying a home surged again in October, a closely followed index showed, and prices rose at the fastest rate in six years in a clear sign the housing market is still booming despite a raging pandemic.
A broader measure by Case-Shiller that covers the entire country, meanwhile, showed a similarly large 8.4% increase in home prices over the past year. That’s also up sharply from 7% in the prior month.
Prices have risen at the fastest clip since 2014 owing to record-low mortgage rates and an influx of people leaving cities to escape the coronavirus and find more space. A short supply of homes for sale has also been a contributing factor.
On a monthly basis, the Case-Shiller 20-city index rose 1.3% in October.
What happened: Prices rose in at least 19 of the 20 large cities tracked by Case-Shiller. Detroit was excluded once again because not enough information could be collected. A state lockdown to try to slow the spread of the virus has led to delays in record keeping.
The biggest yearly increases in home prices took place in Phoenix (12.7%), Seattle (11.7%) and San Diego (11.6%).
The smallest increases occurred in New York (6%) and Chicago (6.3%) and Las Vegas (6.4%) — cities that have been hit hard from the virus or whose local economies have suffered the most.
Big picture: Home sales aren’t expected to slow much, if at all, even amid a record coronavirus outbreak. Super-low rates and the growing prospects of the economy gradually returning to normal are likely to keep demand high.
That’s good news for sellers but bad news for prospective home buyers, who are unlikely to get much of a price break in 2021.
What they are saying? “The data from the last several months are consistent with the view that COVID has encouraged potential buyers to move from urban apartments to suburban homes,” said Craig J. Lazzara, global head of index investment strategy at S&P Dow Jones Indices.
Market reaction: The Dow Jones Industrial Average DJIA, 0.28% and S&P 500 SPX, 0.17% rose in Tuesday trades. Stocks have climbed to a record high on optimism that coronavirus vaccines will soon lead to a stronger economic rebound.
Re-posted from https://www.marketwatch.com/story/u-s-home-prices-surge-to-6-year-high-case-shiller-shows-11609251649
California’s housing market is poised to send 2020 out on a high note—reaching levels not seen in over a decade despite elevated unemployment and ongoing restrictions in the broader economy. The macroeconomy has also shown promising signs of late with consumer confidence picking up in December and rates sitting at all-time lows. There is even light at the end of the tunnel on the public health standpoint. Challenges remain, but if we can make it through these next few months, the outlook for 2021 remains positive for our industry.
More people are buying vacation homes or second homes this year, as its share of total sales rise to the highest level in four years, according to C.A.R.’s Annual Housing Market Survey. The flexibility to work from home and the desire to move away from metropolitan areas motivated home buyers to flock to resort communities in search of more space and a healthier lifestyle. Resort communities are seeing unprecedented buying activity and price increases, and their markets have been outperforming the rest of California so far this year.
FILE – In this Sept. 28, 2020 file photo a firefighter rests in front of a burned home while battling the Glass Fire in the Skyhawk neighborhood of Santa Rosa, Calif. Californians approved a ballot measure that adds and strips exemptions to property taxes, giving more breaks to seniors, disabled and wildfire victims when they move and taking them away from people who turn inheritances into investment homes. Proposition 19, which received 51% of the votes, is expected to produce additional revenue for schools, local governments and firefighting districts. (AP Photo/Noah Berger, File)
Proposition 19, billed as “The Property Tax Transfers, Exemptions, and Revenue for Wildfire Agencies and Counties Amendment,” passed with 51.1% of California voter approval in November. As a result, 2021 will see sweeping changes in property taxes assessed on personal residences. There’s good and bad news.
Let me note here that I’m going to simplify the math. Your tax base is the assessed value — the value listed on your property tax bill on which the property tax is calculated. It is typically the fair market value of your home at the time you bought it, adjusted annually by the 1% allowed under Proposition 13 and local taxes and assessments. For the examples below, I’m using the purchase price as the “property tax base.”
The good news
For residents age 55 and older, severely disabled, or a victim of a wildfire or natural disaster, there is much to like about Prop. 19. Effective April 1, 2021, those eligible homeowners can sell their homes and take their property tax base with them to any other property they buy for the same value or less in the state of California.
Before Prop. 19, if Susie Seventy bought a home in 1980 for $200,000 and the property was now worth $1 million, Susie may have resisted selling even if the house was too large and the stairs were too steep. To sell and downsize to a smaller home worth $500,000, unless she moved to a county with reciprocity and could transfer her property tax basis, Susie would wind up paying more than twice the property taxes she was paying, as she’d be taxed on the $500,000 tax base rather the $200,000 base in her current home.
Under Prop. 19, Susie is now free to sell her home and buy another home valued at $1 million or less and have her same tax base ($200,000) — anywhere in California. (Cue the cheers of real estate agents everywhere, which is precisely who championed this proposition.)
For people age 55 and older or severely disabled, this property tax base transfer can now be moved up to three times in your life anywhere in California.
The semi-good News
Residents over age 55, the severely disabled, and wildfire or natural disaster victims can also benefit from Prop. 19 after April 1, 2021, if they’re looking to upgrade to a more expensive home.
Say that Sam Sixty has a nice home he bought for $400,000 many years ago, and it’s now worth $800,000. But Sam’s now divorced, the kids have moved out and since he’s always preferred blondes, he’s looking to spend more time at the beach. When he finds that classic California beach bungalow for the low, low price of $1.5 million, Prop. 19 still has some advantages for him. His new tax base will be $400,000 on the first $800,000 of value, with the remaining $700,000 taxed at the normal rate. Sam can carry over the tax base value up to the fair market value of the “old” home to the property tax base of his new home. (Cue more real estate agent cheers.)
The bad news
The 55 and over set may love Prop. 19, but their children aren’t going to like it.
Before Prop. 19, parents could transfer their primary residence and $1 million (per parent) of other property to their children without triggering a reassessment of those properties. After Feb. 15, 2021, that exemption is severely curtailed.
Beginning Feb. 16, a transfer of a principal residence by a parent to a child is only exempt if the parent was using the property as their principal residence and the child will also be using the home as their principal residence immediately following the transfer. No other transfers of property between parents and children will be exempt from reassessment, except in the case of “family farm,” which is thus far only vaguely defined but appears to include land farmed even if there is no home on such land.
Even those transfers qualifying as exempt from reassessment have limits. The exemption will only apply as far as the assessed value at the time of the transfer plus $1 million. Anything above that will be assessed at the normal tax value.
Assume Ed and Eleanor Eighty have lived in their quaint Laguna beach home since they bought it in the early 1970s. Their tax base is a mere $80,000, but the home is valued at $2 million. Prior to Prop. 19, when Ed and Eleanor passed on, they could have left their home to their artist son Elijah who could have moved in and painted en plein air on the deck to his heart’s content or kept the property and rented it out. Either way, he’d pay only what his parents paid in property taxes, and with a stepped-up income tax basis at the $2 million value, so even if he sold the property, he’d pay no income tax.
Under Prop. 19’s new rules, if Elijah moves into the home and files the homeowner’s property tax exemption within one year, he will be able to exclude $80,000 plus $1 million from increased property tax assessments, but the remaining $920,000 will be taxed at the regular property tax base. This would result in roughly $9,200 a year more than his parents were paying.
If Elijah does not move into the home, the property will be assessed at the full $2 million value, with the property tax bill then exceeding $20,000 a year. Let’s hope Elijah can sell those paintings, or he just might have to sell the beach house. (There are those real estate agent cheers again).
Parents looking to pass their principal residences or other property, such as family business property, would do well to seek advice soon.
There are options, including the use of trusts, forming business entities to hold the properties, and lifetime gifts before Feb. 16th but each of these techniques is very fact-specific and requires a “running of the numbers” to see what makes sense. This is particularly true since a lifetime gift of property transfers the income tax basis as well, and you may be trading lower property taxes for higher income taxes down the road.
Prop. 19 giveth, but it had to taketh away to keep those property tax revenues coming in. The proposition was said to eliminate “unfair tax loopholes used by East Coast investors, celebrities, wealthy non-California residents and trust fund heirs to avoid paying a fair share of property taxes on vacation homes, income properties, and beachfront rentals they own in California.” (ACA-11 Section 2.1(a)(2)).
Alas, it likely affects many normal California families as well.
Teresa J. Rhyne is an attorney practicing in estate planning and trust administration in Riverside and Paso Robles, CA. She is also the #1 New York Times bestselling author of “The Dog Lived (and So Will I)” and “Poppy in The Wild” released on October 6, 2020. You can reach her at [email protected]
October 27, 2020, 11:53 pmBy Aly J. Yale // https://www.housingwire.com/articles/is-2021-a-good-time-to-buy-a-house/
This year’s housing market has been plagued with low inventory, rising home prices, and endless bidding wars, making it hard for some would-be homeowners to get their foot in the door. Will 2021 be any different? Or, will it be a good time to buy a house?
If you’ve been eyeing a home purchase but have sat out due to 2020’s competitive market (not to mention the other challenges the year has come with), you might be wondering just that.
Though there’s no crystal ball, a clearer picture is starting to emerge of what next year’s housing market may look like. Here’s what you need to know:
Interest rates should remain low.
The industry’s major players all expect mortgage rates to stay in the low 3% range come 2021. The Mortgage Bankers Association predicts the year will start off at a 3.1% average rate for 30-year loans, while Fannie Mae expects an even lower 2.8%. Freddie Mac projects a 3% average across the entire year.
Low rates like these can reduce the monthly payment that comes with buying a house, and they can also expand your budget, making it more affordable to buy a higher-priced home.
Home prices will probably keep rising.
It’s likely that home prices will continue their upward climb in 2021, though it looks like it may be at a slower pace than in previous years. MBA projects a 2.4% jump in prices (much better than last year’s 5.1%), while Freddie Mac expects an increase of 2.6%.
Fortunately, if prices do rise, low interest rates will help blunt the impact slightly, though it may mean buying a smaller home or dealing with a slightly higher monthly payment.
You may have more homes to choose from.
Prices might rise, but the upside is that you may have more homes to choose from. Housing starts are expected to increase steadily in 2021, meaning more new construction properties should hit the market as we head into the year. Both Fannie Mae and MBA predict the stronger single-family construction than we’ve seen in at least two years.
Don’t forget: Housing is local.
At the end of the day, housing conditions vary by market, so if you’re wondering if 2021 is a good time to buy a house, make sure to talk to a local real estate agent in your area. They’ll be able to fill you in on the conditions in your specific housing market.