Trump Tax Bill change in Mortgage Interest Deduction Creates Almost No Impact on Los Angeles Real Estate

 

Mortgage Interest Deduction Change May Cause Small One Time Effect for Homes Valued Between $1,000,000 and $1.3M

Don’t believe the scare headlines. The proposed change in the mortgage interest deduction from a cap of $1,000,000 to $750,000 for new loans will have almost no impact on prices of homes in the Los Angeles area. It is true that California will be impacted more than almost any other area in the US., but the impact will be modest, to say the least.

Under current tax law, the mortgage interest deduction is capped at $1,000,000 of loan outstanding. If you have a loan with a balance of $1,200,000, you are not able to deduct the interest on the $200,000. If the interest rate is 4%, you would effectively not be able to realize $8000 per year of deduction, due to the cap. This taxpayer is likely to be in the 33% tax bracket, so the actual cost per year would be $2667 per year.

Under the new rules, the mortgage interest deduction cap would drop to $750,000.  In the worst case scenario, someone buying a home under the new tax plan that required a $1,000,000 loan would now lose the deduction on $250,000 of interest. Again, if we assume 4% interest, that would be $10,000 per year, and if the taxpayer was in the new 35% bracket, the actual out of pocket cost would be $3,500 per year or about $300 per month. So, in the very worst case scenario, the $300 per month difference would mean this individual might now only be able to afford a $1,200,000 home instead of a $1,250,000 home.

It is likely that there will be some impact on homes between $1,000,000 and $1,300,000. However, the impact will be a one-time event.

If you would like to review the impact of the new tax bill on your plans with regards to buying or selling residential real estate in California, please call Whit Prouty today for a closer look at your exact situation. Call 310-777-6302

Nine Things Homeowners Should Never Say to a Prospective Buyer

More Tips for Home Sellers in Los Angeles

You’ve listened carefully to every bit of advice your Real Estate Agent has given you. You’ve decluttered the inside of the house and improved the curb appeal with some bush trimming and touch up paint. You’ve agreed to market the house at the true market price. The pictures and videos are online, and the realtor open house has happened. It is time to let the public take a look at your beautiful home.

After all that work, wouldn’t it be a shame if one short sentence killed the deal? Unfortunately, you might be the one to make an innocent comment that results in the potential buyer beating a hasty retreat from any possible offer. Let take a look at nine ways to avoid such a catastrophe:

1.     The best way to avoid putting your foot in your mouth is to remove both your feet and your mouth from the vicinity. If your real estate agent is setting appointments when he/she can’t be there or has not recommended you be elsewhere when the prospects are coming for a viewing of your home, get a new agent. Successful, experienced agents will always make it clear that you should find any excuse not to be home when they are showing the house.

2.     Assuming you are talking with a prospect, here are eight remaining things to avoid saying. “We’re willing to come down in price,” would be number one for sure. Obviously this statement puts your agent at a disadvantage in negotiating the best deal for you. There are many variations of this theme, such as “We’d be willing to put on a new roof.” Don’t offer anything. Your deal is on the table. Let the buyer make an offer next.

3.     “We’ve had the house tented twice in the past 20 years. Termites are really pesky around here.” While you are responsible to point out flaws in the home itself, you are under no obligation to give information about the neighborhood, the environment, or the mean old man two doors down.

4.     “We need to close quickly! We are under a contingency on the home we are buying.” Lack of flexibility is the last thing the buyer wants to hear prior to an offer. Besides are you going to scotch the whole deal because of a detail in your current contract? Maybe your seller will negotiate that issue. There is no reason to talk about your plans, your needs, or your hopes.

5.     “I’d like to live here forever, but I just went through a horrible divorce and need something smaller.” Folks have all kinds of superstitions about disease, germs, even emotional illness. There is no reason to say why you are moving. It won’t cause them to feel sorry for you or effect their decision in any way. But if your aunt Isabelle was locked up in one of the bedrooms to keep her away from the children, that ghost could easily hurt the sale.

6.     You agent probably admonished you to get rid of any evidence of pets. Therefore it should go without saying that you don’t want to say “This backyard is just fantastic for dogs. Our Doberman’s love to scamper around back there.” Now your buyers will start scrutinizing every aspect of the house and grounds for evidence of stains, hair, smells, etc.

7.     “We raised our three children here over the past 30 years and have so many memories. I cry just thinking about leaving my home.” Nobody wants to feel like they are hurting another human. Even thought he buyer knows you want to sell and are offering to sell, they may get an upset stomach thinking that they will be the ones to push you into the streets.

8.     Never be defensive. You are likely to hear the potential buyer saying negative things about your home, neighborhood, or some amenities. It would be easy to become defensive. “I’m sure you can get by with one bathroom. We did it for all those years.” There is just no right way for you, the homeowner, to respond to most negatives. Let the buyer process the pros and cons.

9.     Any comment about politics, religion, college teams, or other similar hot buttons. Both parties to the transaction need to be at least emotionally neutral when making or accepting an offer. Knowing that the other party is your “enemy” in some way can cause just enough angst to quash the deal.

You do have a very clear legal requirement to disclose anything that could impact the value of the property, but your personal opinions, history, and emotional attachments do not have any bearing on value. They could, however, if spoken to the buyer, impact the deal.

When you use Whit Prouty as your agent, he will professionally prepare you for the showing of your home, and he will be available to show the house so you can be relaxing at some other place while he does the hard work of selling. To learn more about how to maximize the sale price of your home and sell it quickly, be on the lookout for Whit’s soon-to-be-published new book, 10 Keys to Selling Your LA Home.

You can also reach Whit on his personal cell at 310-962-6942 to set up an appointment.

Is 2017 The Perfect Time to Sell Your Home in Los Angeles?

If you are planning to sell your home and then buy another home in Southern California there is no wrong time to sell your home. If you buy and sell in a strong market you’ll get top dollar and pay top dollar. If it is a low point, then you will buy in a low market, but have to take a low amount for your home.

When you sell and buy, you do have three major cost considerations: The cost of the transaction, the differential in interest rates, and the Prop 13 effect. The costs will include real estate fees, costs of fixing up your home to sell it, mortgage and other fees related to purchasing the new home, and moving expenses.

The differential in interest rates will likely still be quite modest in 2017. If you are fortunate enough to have a mortgage at around the lows of 3.5%, you are likely to end up paying around 1% more in 2017. Many homeowners do not have such low rates. The real cost of that extra 1% on a $600,000 mortgage is about $375 a month. Most will not pay even that much. You could mitigate this quite a bit by using one of the many adjustable rate mortgages available today.

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The proposition 13 effect will depend on when you bought your current home and how well the State of California has kept up with your property value increases. If you purchased between 2008 and 2012 and paid a very low price, you will likely see an increase. If you are over 55, Proposition 60 and 90 can help you to eliminate this difference.

Are you selling, but not buying another home?

Maybe you are selling your home and thinking about living full-time on a cruise ship or at an island resort. Or you might be retiring to a senior living situation, or just want to rent now. Even if you are planning to buy something else, maybe you are going to play the market, selling high, renting for a while, then buy when things cool off.

After a thorough review of expert opinion including Zillow, the UCLA Anderson School Report, and various others, here is a good look at the LA forecast for housing in 2017 and beyond. We will break down the situation into the primary factors affecting real estate prices.

Inventory – The primary mover of housing prices for the past five years has been historically low inventories of residential housing. Current construction underway or in the planning phases offers no relief to this shortfall. In some areas in SoCal the shortage is acute with days-on-market averaging 61 during all of 2016. Most pundits see no reason for optimism in this regard even into the next decade due to California State, regional, and local regulations, taxes, and even shortages of places to build new housing.

Affordability – There is little doubt that the average Angelino is having problems buying or renting housing that fits the affordability models of the past. Over 30% of all families are paying more than 50% of their earnings on housing expenses.

On the other hand, there continues to be an influx of new families from Northern California and other high-tech centers that can afford Los Angeles more readily than their current neighborhood, and/or like the weather better. In general, salaries seem to be headed upward due to increases in minimum wages and a tightening labor market. Affordability is an issue that could restrain future increases in pricing, but seems more likely to be merely a restraint, not a block.

Historical comparisons – While pricing in LA is high, it has not yet quite reached the historic highs of 2007. Even though overall inflation has been restrained since then, there still has been some inflation. On an inflation-adjusted basis, there is probably 20% more to go in most markets to return to 2007 levels.

Population and other demand aspects – The population is still growing, though modestly, in Los Angeles County and all of SoCal. Demographically, LA is becoming older with more seniors and fewer young children, households are smaller, and a growing percentage is Latino. Residential housing starts are only 50% of what is needed to keep up.

Mortgage rates – after almost a decade of amazingly low mortgage interest rates, the improving economy and Federal Reserve adjustments are beginning to move interest rates upward. At under 4.5% for a 30 year fixed loan, interest rates remain at historic lows other than the past 10 years. However, as interest rates increase, the cost of ownership does increase. There is no doubt that this will impact pricing and could slow overall purchase activity. If we push past 6% in 2018 or 2019, pricing might be forced down to some degree, though with no inventory this is unlikely to become a spiral.

The overall economy – The bad news. We are overdue for a recession. This is the third longest period ever recorded for the US economy to go without a correction. This may be explained in part by the depth of the 2008 recession and the slow recovery since. But the fact remains that something could push us into recession. Most recessions result in significant trimming of housing prices in Los Angeles.

The other big potential negative for the World economy would be a credit bubble crash. Governments, businesses, and individuals have been living on credit at rates as low as 0% for a very long time. As these rates increase, all three groups will see costs rise substantially. There is no precedent for this type of unwinding, so we have no idea what could happen. But it could be worse that 2008.

The good news. The stock market is generally considered to be an economic barometer that predicts about six months out. If that is true, the US economy is going to have a great first half of 2017. This will create demand. In addition, most economic pundits, even those who aren’t fond of the new POTUS feel that policies being implemented by the new government are likely to be stimulating to the economy. Some are predicting that the current good times may extend for another three or four years.

Government regulations – Many are predicting that the Dodd-Frank legislation which limited the ways that lending institutions are allowed to sell loans, will be repealed by the new Congress. This may lead to some easing by mortgage lenders and banks. This could result in more completion for scarce properties.

Foreign buyers – A recent poll placed LA in the top five cities worldwide that are likely to benefit from rich foreign buyers purchasing real estate for personal use or investment. This has been, and is likely to continue to be, a major factor in pushing LA housing prices upward.

If you would like to find out what your house is worth and to discuss your options in this red hot market, call Whit Prouty today: 310-962-6942