Internet a Significant Home-Buying Resource

A recent study by the California Association of Realtors (CAR) shows that nearly two-thirds of all first-time home buyers used the Internet as a significant part of the home-buying process. Chances are, they may be looking for lawn care, landscaping, irrigation and other service companies on the Web as well.

The 2005 Internet Versus Traditional Buyers Survey released on Tuesday showed that 62 percent of homebuyers used the Internet as a integral part of the home-buying process, compared to 56 percent in 2004. The report notes that Internet buyers and traditional buyers should not be viewed as two separate groups, but as segments in the spectrum of the home-buying population, each utilizing technology in varying degrees. However, some specific characteristics of Internet buyers were identified in the survey. According to the report, Internet buyers were younger, wealthier, better educated and more likely to be married than traditional buyers.

“As more consumers gain access to high-speed connections and spend more time online, they have clearly experienced a growing comfort level with using the Internet in all facets of their day-to-day lives,” says CAR President Jim Hamilton.

Internet buyers and traditional buyers both expressed significant differences in how they conducted their home-buying research. Internet buyers conducted more research at the onset of their home-buying process, while traditional buyers relied more on their real estate agents as information sources. Other key findings included:

• The median age of Internet buyers was 39 years compared with a median of 46 years for traditional buyers.
• More than nine out of 10 Internet buyers were married, while eight of 10 traditional buyers were married.
• Eighty-five percent of Internet buyers had at least a four-year college degree and 11 percent completed post-graduate work. By comparison, 78 percent of traditional buyers held a college degree and 4 percent completed post-graduate work.
• Internet buyers had an annual income of $185,088, compared with $151,190 for traditional buyers.
• Internet buyers spent two weeks looking for the home they ultimately purchased, compared with seven weeks for traditional buyers.
• Close to six of 10 Internet buyers said the information that they gathered from the Internet was less useful than that provided by their Realtors; none considered the information gathered from the Internet to be more useful than that obtained from their Realtors.

Housing Starts Peak Again In February

The National Association of Home Builders (NHAB) reports that single-family housing starts set a new all-time record and multifamily construction was buoyed by the condominium market. Total housing starts increased by 0.5 percent to a seasonally adjusted annual rate of 2.195 million units, setting a new 21-year-record for the second month in a row, the U.S. Commerce Department reported earlier this month. The February construction pace was also 15.8 percent above a year ago.

“Builders are reporting that there is still plenty of traffic in their sales offices,” said Dave Wilson, NHAB president and a custom home builder from Ketchum, Idaho. “Mortgage rates, employment, household income and other favorable market conditions continue to drive demand.”

NAHB Chief Economist David Seiders agreed. “Homeownership continues to plow ahead,” he said. “Builders are reacting to strong demand in the single-family home and condominium markets, both of which continue to cry out for supply. Stronger job prospects also are fueling the rental market.”

The rate of single-family home construction reached 1.775 million units, a new record for the second month in a row. The pace was 0.3 percent above the January rate and 16.7 percent above February 2004. Multifamily housing starts increased to a seasonally adjusted rate of 420,000 units in February, 1.7 percent above the January pace and 12.3 percent above a year earlier. Issuance of total building permits decreased 2.7 percent from January’s robust pace to a seasonably adjusted rate of 2.074 million units.

“It’s perfectly clear that housing will remain an important component of GDP for the first quarter of the year. There’s no question that the housing market is still an engine of economic growth,” Seiders said. “However, we do expect housing to plateau as the year progresses, other components of the economy pick up more steam and the interest rate structure moves up further.”

Along with new homes often comes new landscaping, which is why the green industry is wise to keep an eye on housing starts and consumer confidence. Another detail lawn and landscape contractors should consider is where new homebuyers get their information.

Home Mortgage Interest Rates are Climbing

Home mortgage interest rates have reached their highest point in seven months.

A recent survey by mortgage lender Freddie Mac shows 30-year mortgage rates are now above 6 percent.

Analysts say, the rate hike has caused homebuyers to turn to so-called "hybrid adjustable rate mortgages".

Hybrid mortgages allow homebuyers to lock in rates for three, five or seven years.

Those mortgages averaged 5.35 percent.

New record for single-family housing starts in February

The National Association of Home Builders (NAHB) reported that single-family housing starts set a new all-time record in February. In addition, the multifamily construction market showed signs of better health as the job market strengthens.

Housing statistics are considered a good early indicator of future demand for lawn care and landscape services.

"Home ownership continues to plow ahead," said David Seiders, NAHB chief economist. "Builders are reacting to strong demand in the single-family home and condominium markets, both of which continue to cry out for supply. Stronger job prospects also are fueling the rental market."

However, Seiders added that NAHB expects to see demand plateau later in the year as interest rates rise.

NAHB issued its analysis in response to the U.S. Commerce Department's report on February construction statistics. Total housing starts increased by 0.5 percent to a seasonally adjusted annual rate of 2.195 million units, setting a new 21-year-record for the second month in a row. The February construction pace was also 15.8 percent above a year ago.

The rate of single-family home construction reached 1.775 million units, a new record for the second month in a row. The pace was 0.3 percent above the January rate and 16.7 percent above February 2004.

Multifamily housing starts increased to a seasonally adjusted rate of 420,000 units in February, 1.7 percent above the January pace and 12.3 percent above a year earlier.

For more info:

"Housing starts peak again in February," NAHB press release, March 16, 2005.

"Rental market indicatorsimproving, condos still strong," NAHB press release, March 17, 2005.

Sales of new homes 2nd highest level

Sales of new homes jumped about 9.4 percent in February to a seasonally adjusted annual rate of 1.226 million, the Commerce Department estimated Thursday.

The sales rate is the second highest, matching December's pace and just below October's record 1.304 million. It was the largest percentage increase in four years.

Existing Home Sales Fall again in Feburary

Sales of existing U.S. homes fell 0.4 percent in February, while home prices rose at double-digit rates, a trade association report showed on Wednesday. Sales of previously owned homes declined to a seasonally adjusted annual rate of 6.79 million units last month, the National Association of Realtors said. That figure includes both single-family homes and condominiums.

Single-family home sales slid 0.3 percent in February to a 5.94 million unit rate from a 5.96 million unit pace in January. Condo sales dropped 1.2 percent to an 848,000 unit rate from an 858,000 unit pace in January.

Analysts had expected sales to fall to a 6.70 million unit rate from January's upwardly revised 6.82 million clip.

The national median home price jumped 11.0 percent to $191,000 from the same month a year earlier, the NAR report showed.

David Lereah, the group's chief economist, said the housing market appeared to be in the early stages of settling down. "Home sales were surging at unprecedented levels for most of last year, " he said. "The cooling we expect in sales this year means we'll be transitioning from a white-hot housing market into a very strong market that still favors home sellers, but should become more balanced as the year progresses."

In February, the supply of homes for sale at the current pace was 4.2 months' worth, up from 3.8 months' worth in January.

"The report showed a negligible decline. Obviously housing; is holding at a pretty steady level here, "said Susan Stearns, vice president of institutional foreign exchange sales at the Bank of Montreal in New York. "It doesn't alter the scenario whatsoever. If anything, it underscores the fact that the economy is cooking nicely along, "she added.

Home sales have been bolstered by low mortgage rates. According to mortgage finance company Freddie Mac, the national average long-term fixed mortgage rate was 5.63 percent in February, down from 5.71 percent the month before.

What is Tax Deductible in the loan process?

This is one of the most frequently asked question at this time of year. I have spoke with a number of different tax specialists about this and have prepared the following 9 responses, addressing a number of different elements surrounding the mortgage transaction.

1. Home acquisition mortgage loan fees. If you bought your primary or secondary home in 2003, you probably obtained a mortgage to finance the purchase. That mortgage is called and “acquisition mortgage” because it enabled the purchase of the residence. If you paid a loan fee to obtain that acquisition mortgage, usually called “points”, that loan fee qualifies as an itemized interest deduction. Each point paid equals 1% of the amount borrowed.

2. Home improvement loan fees. Similarly, if you paid a loan fee to obtain a home improvement loan, that loan fee is fully deductible in the tax year it was paid.

3. Loan fees paid to refinance a home loan (or borrow against other real estate). Thanks to low mortgage interest rates, many homeowners refinanced again in 2003. If you refinanced your existing home loan in 2003, or borrowed against other real estate such as an apartment building, any loan fee you paid must be deducted over the life of the mortgage.

4. If you bought or sold property in 2003 remember to deduct prorated real estate taxes. A major tax deduction many real estate buyers and sellers overlook is the prorated property tax they paid at the close of escrow. Even if the other party remitted the payment to the tax collector, but you were charged a prorated portion of the tax bill, be sure to deduct your share on your 2003 return.

5. Deduct prorated mortgage interest in the year of property purchase or sale. Similarly, if bought a residence and took over an existing mortgage, don’t forget to deduct your prorated interest share for the month of the sale. Your Final Closing/Settlement Statement shows your prorated share of the mortgage interest.

6. Mortgage prepayment penalty. If you paid off an existing mortgage early and were charged a prepayment penalty by the lender, that prepayment penalty qualified as an itemized deduction.

7. When land rent payments qualify as interest deductions. Millions of homes are located on leased land. Internal Revenue Code 163 allows land rent to be deducted like interest when the lease; (a) is for at least 15 years, including renewal periods; (b) is freely assignable; (c) contains a present or future option to buy the land; and (d) is like a security interest, such as a mortgage. Payments to buy the land are not deductible, nor are ground rent payments deductible if you do not have the option to buy the land, such as in a mobile home park.

8. Home construction loan interest. If you built a new home in 2003, or are building one now, don’t forget to deduct the construction loan interest paid. It’s deductible if the construction period does not exceed 24 months before occupancy of your principal residence.

9. Deduct prepaid property taxes and mortgage interest. If you prepaid 2004 real estate taxes in 2003, as homeowners do to increase their tax deductions, or if you pay your January 2004 mortgage payment in December 2003, don’t forget to deduct these extra mortgage interest and property tax payments on your 2003 income tax returns.

As with all tax related issues, please consult your accountant or tax professional for matters dealing iwth your specific financial situation.

Interest on home-equity loans not always deductible

Low mortgage interest rates made 2004 another big year for refinancing, and home-equity borrowing in the United States reached a record-high level last year, according to a recent study.

Americans took out $431.3 billion of home equity loans and lines of credit, according to SMR Research, a market research firm in New Jersey. That's up 35 percent from 2003.

Yet many borrowers don't realize they might not be able to deduct all the interest they pay on home-equity loans. That would depend on how much they borrowed and what they used the money for. Taxpayers subject to the Alternative Minimum Tax face stricter limitations on what they can deduct.

First, it's important to know that in "tax speak" there are two kinds of mortgage debt: home- acquisition debt and home-equity debt. Acquisition debt is a mortgage or mortgages you take out "to buy, build or substantially improve" your main or second home.

In general, you may deduct the interest you pay on up to $1 million in home-acquisition debt. The limit applies even if you own a second home.

So let's say you took out a home-equity loan, and you used it to remodel your kitchen for $40,000. For tax purposes, that amount is considered part of your "acquisition" debt because it was used to improve the home. You can deduct the interest on that new debt, as long as your total acquisition debt is $1 million or less.

From the Internal Revenue Service's standpoint, home- equity debt is different.

It is money you borrowed from your equity and used for purposes other than buying, building or improving your home. Only interest paid on $100,000 of equity debt is deductible as mortgage interest. Again, the limit applies even if you own a second home.

If you used a home equity loan to pay your child's college tuition, for example, you can deduct only the interest you paid on the first $100,000 (unless you are subject to the Alternative Minimum Tax; more on that in a moment).

If you borrowed more than $100,000 and used it for purposes other than improving your home, you may still be able to deduct the interest if you used the money to invest in stocks or start a business, though it won't count as mortgage interest paid. But if you spent the money on a vacation or a car, the interest is probably not deductible.

Things are trickier still for those who must pay the Alternative Minimum Tax, the tax that mainly targets higher-income taxpayers.

Those subject to AMT don't get many of the write-offs that other taxpayers do. Only interest on mortgage debt that is used to buy, build or improve a home can be deducted by those subject to AMT.

That means that if someone who pays the AMT spends $20,000 of her home equity loan on a car, the interest on that debt is not deductible, even if she has not exceeded the $100,000 equity debt ceiling.

"None of the equity debt is allowed for AMT, and that's where people are getting burned," said Claudia Hill, owner of Tax Mam Tax Services.

For example, let's say you had a mortgage for $300,000, and you've paid it down to a balance of $280,000. You refinance that amount of acquisition debt, and also take out a $100,000 equity line of credit. You use $60,000 to remodel a kitchen and bathroom.

Now you have $340,000 worth of acquisition debt ($280,000 plus $60,000), the interest on which is deductible for both regular and AMT purposes.

If the remaining $40,000 of the loan is used for something other than substantial improvement to the home, it is deductible for regular taxpayers, but not for AMT payers.

For more information, refer to IRS Publication 936, "Home Mortgage Interest Deduction," or consult a tax adviser.

Housing market continues strong pace in 2005

To paraphrase the great American humorist Mark Twain, reports of the housing boom's death have been greatly exaggerated.

Despite warnings from analysts and economists in 2004, the nation's housing market continued to set new records and home builders are just as optimistic for 2005.

The year got off to a solid start, with housing starts jumping nearly 5 percent in January to a seasonally adjusted annual rate of 2.2 million units. That is the highest pace in 21 years, according to the Commerce Department. Housing starts in the first month of 2005 were 12 percent higher than during the same period in 2004.

"Builders are striving to keep up with demand and with mortgage rates and other market conditions still very favorable, they see strong months ahead," said Dave Wilson, president of the National Association of Home Builders, in a news release. "The single-family market, in particular, is crying out for supply and increases in housing prices are symptomatic of a market that's being buoyed by demand while constrained by land-use controls in many areas."

The increase is house prices is having an impact on the Flagler County market, according to Russ Forrest, owner of Russell Forrest Custom Homes and president of the Flagler County/Palm Coast Home Builders Association.

"Where we used to have good business for entry-level housing, it really doesn't exist anymore," he said. "It's probably just a shift in the market away from entry level to medium and upper end."

Forrest said the entry-level end of the housing spectrum is the only part slowing in Flagler. Beyond that segment of the market, the home builders expect a strong year again in 2005.

"I think all you have to do is drive through Palm Coast as the biggest example," Forrest said. "You still have a lot of lots with trees on them and somebody owns that land and wants to build a house on it."

Forrest said the building materials supply shortage that affected some builders in 2004 was not as bad as it might have seemed.

"I don't think it was a particularly bad year," he said.

Forrest said builders with established relationships with suppliers and those committed to major building projects likely fared better than smaller builders.

"Depending on where you fit into that equation, it might have been a rough year to get supplies," he said.

The year is already gearing up to be a strong one for local home builders, with permit activity remaining at high levels.

However, building permit activity in the first two months of 2005 could reflect the school impact fee that went into effect in February, said Jason Gambone, Palm Coast director of development services.

"The numbers are pretty high, but they could be affected by the fee coming into effect," he said.

Still, Gambone said there are few signs of a slowdown in the local housing market.

"We're getting a lot of new subdivision proposals," he said. "In terms of the speculation, it's extraordinarily high. I think that at least from an industry standpoint, judging by those applications, people are projecting a strong future."

Home builders nationally are also expected a solid year in 2005.

"On the whole, builders are still expressing very positive views of conditions in the housing market," said the NAHB's Wilson.

The biggest drag on builder attitudes are rising land costs, the NAHB said.

"The main concern builders are citing right now pertains to availability and pricing of lots for development, which itself is a symptom of strong demand," said NAHB Chief Economist David Seiders. "Demand, in turn, continues to be driven by solid job and income growth, low mortgage rates and the investment aspects of homeownership."

New home construction was highest in the south, rising just under 19 percent in January. Winter storms in the Midwest and West pushed housing starts down, but permit activity increased nearly 2 percent nationally

Middle class buying second homes

Middle-class Americans are taking a lesson from the rich: There is no place like a second home.

Sales of second homes last year made up more than a thrid of all residential sales, according to a new study by the National Association of Realtors. Of those, 13 percent of those homees were purchased as vacation homes and 23 percent as investment properties. This total is up 16.3 percent over 2003 results.

Data compliled by the Census Bureau shows there are 43.8 million second homes in the US, including 6.6 million vacation homes and 37.2 million investment properties, compared to 72.1 million owner occupied homes.

The typical vacation-home buyer is 55 years old and earned $71,000 in 2003, while investment property buyers had a median age of 47 and eared $85,700.