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Are you waiting for house prices to drop during the next recession? Why you could have a very a long wait

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“The housing market could provide a cushion to the national economy in the next recession, economists say.”

FROM MARKETWATCH: It’s unclear when the next recession will come. But a recent report argues that when it does the U.S. housing market is unlikely to adversely affected in any major way.

Researchers at First American Financial Services FAF, -0.49%, a title insurance company, examined how the country’s housing market has fared historically during recessionary periods. Based on what’s happened in past recessions, the report argues that the next recession is unlikely to prompt a major downturn in housing.


“While the housing crisis is still fresh on the minds of many, and was the catalyst of the Great Recession, the U.S. housing market has weathered all other recessions since 1980,” wrote Odeta Kushi, deputy chief economist at First American and the report’s author. “In fact, the housing market may actually aid the economy in recovering from the next recession — a role it has traditionally played in previous economic recoveries.”

Using its own data along with information from Freddie Mac FMCC, -0.32%  and the National Association of Realtors, the report maps out how the housing market has traditionally fared in economic downturns. In most other cases, home price appreciation continued at an even pace, and existing-home sales growth only edged downward slightly, Kushi wrote.

So what made the Great Recession different? The housing boom that preceded the last recession was largely driven by an explosion in both home-building activity and mortgage credit. Home buyers were able to get mortgages with no documentation of their income and no down payment, and many loans had introductory 0% interest periods that made them cheap to start but more expensive as time wore on.

These homeowners were over-leveraged. “The housing crisis in the Great Recession was fueled heavily by the fact that job loss was paired with a significant share of homeowners who didn’t have much equity in their homes,” Kushi wrote.

While this has made the prospect of buying a home unaffordable for millions of Americans, it has also meant that those who are homeowners have seen their home equity grow substantially in recent years. That decreases the likelihood that they would be underwater on their loan if home prices were to dip in a recession.

“Were we to have a recession, I’d argue housing would provide a cushion because the shortage of supply at the entry-level suggests builders could actually continue to build,” Doug Duncan, Fannie Mae’s chief economist FNMA, +0.88%told MarketWatch in December.

There still are red flags that homeowners should be on the lookout for when it comes to how a potential recession might affect the housing market. For starters, many Americans have taken out cash-out refinance mortgages on their homes as their home values have grown. That’s whittled away the equity these people have in their property, leaving them more vulnerable to owing more than their home was worth in the potential event the home prices drop.

Another issue: Many Americans who fell behind on loan payments and modified their mortgages in the wake of the recession to avoid foreclosure have since redefaulted. Were these people to lose their jobs in a recession, they could easily fall into foreclosure. Research has shown that foreclosures exacerbate economic downturns — and they can have a ripple effect through a local market, causing other homes to drop in value.


And at the local level, certain local housing markets could prove more resilient in the event of recession, depending on the strength of the local economy relative to what’s going on at a national level.

And because developers constructed so many homes, their home values quickly sank when the bubble burst, exacerbating the situation further.

The growth in home prices seen during the current economic expansion has not been fueled by increased access to mortgage credit. Rather, it’s a simple reflection of supply and demand: Many Americans want to become homeowners, but the supply of homes available for sale is very low, pushing prices upward.

WRITTEN BY JACOB PASSY FOR MARKETWACH.COM

7 Tax Benefits of Owning a Home: A Complete Guide for Filing in 2020

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FROM REALTOR.COM: What are the tax benefits of owning a home? Plenty of homeowners are asking themselves this right around now as they prepare to file their taxes. You may recall the new Tax Cuts and Jobs Act—the most substantial overhaul to the U.S. tax code in more than 30 years—went into effect on Jan. 1, 2018. And as a result, last year likely brought big changes to your taxes, especially the tax perks of homeownership.

While not much has changed tax wise since then, an entire year has passed—so you might need a refresher as you sit down with your receipts.

Well, look no further than this complete guide to all the tax benefits of owning a home, where we break down all the tax breaks homeowners should be aware of when they file their 2019 taxes in 2020. Read on to make sure you aren’t missing anything that could save you money!

Tax break 1: Mortgage interest

Homeowners with a mortgage that went into effect before Dec. 15, 2017, can deduct interest on loans up to $1 million.

“However, for acquisition debt incurred after Dec. 15, 2017, homeowners can only deduct the interest on the first $750,000,” says Lee Reams Sr., chief content officer of TaxBuzz.

Why it’s important: The ability to deduct the interest on a mortgage continues to be a big benefit of owning a home. And the more recent your mortgage, the greater your tax savings.

“The way mortgage payments are amortized, the first payments are almost all interest,” says Wendy Connick, owner of Connick Financial Solutions. (See how your loan amortizes and how much you’re paying in interest with this online mortgage calculator.)

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Note that the mortgage interest deduction is an itemized deduction. This means that for it to work in your favor, all of your itemized deductions (there are more below) need to be greater than the new standard deduction, which the Tax Cuts and Jobs Act nearly doubled to $24,400 for a married couple. For individuals the deduction is $12,200, and it’s $18,350 for heads of household.

As a result, only about 5% of taxpayers will itemize deductions this filing season, says Connick.

For some homeowners, itemizing simply may not be worth it. So when would itemizing work in your favor? As one example, if you’re a married couple who paid $20,000 in mortgage interest and $6,000 in state and local taxes, you would exceed the standard deduction and be able to reduce your taxable income by an additional $2,000 by itemizing.

Tax break 2: Property taxes

This deduction is capped at $10,000 for those married filing jointly no matter how high the taxes are. (Here’s more info on how to calculate property taxes.)

Why it’s important: Taxpayers can take one $10,000 deduction, says Brian Ashcraft, director of compliance at Liberty Tax Service.

Just note that this year, property taxes are on that itemized list of all of your deductions that must add up to more than the standard deduction ($24,000 for a married couple) to be worth your while.

And remember that if you have a mortgage, your property taxes are built into your monthly payment.

Tax break 3: Private mortgage insurance

If you put less than 20% down on your home, odds are you’re paying private mortgage insurance, or PMI, which costs from 0.3% to 1.15% of your home loan. But here’s some good news for PMI users: You can deduct the interest on this insurance thanks to the Mortgage Insurance Tax Deduction Act of 2019. Also known as the Secure Act, it retroactively reinstated for 2018 and 2019 certain deductions and credits for homeowners.

“These include the deduction for PMI,” says Laura Fogel, certified public accountant at Gonzalez and Associates in Massachusetts. (This credit is retroactive for 2018, so talk to your accountant to see if it makes sense to amend your 2018 tax return.)

StockSnap_6XELVX8KANWhy it’s important: The PMI interest deduction is also an itemized deduction. But if you can take it, it might help push you over the $24,000 standard deduction. And here’s how much you’ll save: If you make $100,000 and put down 5% on a $200,000 house, you’ll pay about $1,500 in annual PMI premiums and thus cut your taxable income by $1,500. Nice!

Tax break 4: Energy efficiency upgrades

The Residential Energy Efficient Property Credit was a tax incentive for installing alternative energy upgrades in a home. Most of these tax credits expired after December 2016; however, two credits are still around. The credits for solar electric and solar water heating equipment are available through Dec. 31, 2021, says Josh Zimmelman, owner of Westwood Tax & Consulting, a New York–based accounting firm.

The Secure Act also retroactively reinstated a $500 deduction for certain qualified energy-efficient upgrades “such as exterior windows, doors, and insulation,” says Fogel.

Why it’s important: You can still save a tidy sum on your solar energy. And—bonus!—this is a credit, so no worrying about itemizing here. However, the percentage of the credit varies based on the date of installation. For equipment installed between Jan. 1, 2017, and Dec. 31, 2019, 30% of the expenditures is eligible for the credit. That goes down to 26% for installation between Jan. 1 and Dec. 31, 2020, and then to 22% for installation between Jan. 1 and Dec. 31, 2021.

Tax break 5: A home office

Good news for all self-employed people whose home office is the main place they work: You can deduct $5 per square foot, up to 300 square feet, of office space, which amounts to a maximum deduction of $1,500.

Understand, however, that there are strict rules on what constitutes a dedicated, fully deductible home office space. Here’s more on the much-misunderstood home office tax deduction.

The fine print: If you work from home occasionally but have an office to go to, you can’t take this deduction.

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Tax break 6: Home improvements to age in place

To get this break, these home improvements will need to exceed 7.5% of your adjusted gross income. So if you make $60,000, this deduction kicks in only on money spent over $4,500.

The cost of these improvements can result in a nice tax break for many older homeowners who plan to age in place and add renovations such as wheelchair ramps or grab bars in slippery bathrooms. Deductible improvements might also include widening doorways, lowering cabinets or electrical fixtures, and adding stair lifts.

The fine print: You’ll need a letter from your doctor to prove these changes were medically necessary.

Tax break 7: Interest on a home equity line of credit

If you have a home equity line of credit, or HELOC, the interest you pay on that loan is deductible only if that loan is used specifically to “buy, build, or improve a property,” according to the IRS. So you’ll save cash if your home’s crying out for a kitchen overhaul or half-bath. But you can’t use your home as a piggy bank to pay for college or throw a wedding.

The fine print: You can deduct only up to the $750,000 cap, and this is for the amount you pay in interest on your HELOC and mortgage combined. (And if you took out a HELOC before the new 2018 tax plan for anything besides improvements to your home, you cannot legally deduct the interest.)

WRITTEN BY MARGARET HEIDENRY FOR REALTOR.COM

Home Renovations That Are Worth The Cost (& The Ones That Aren’t)

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FROM CNN: Homeowners often spend a lot of money on renovations  expecting to recoup more than they likely will.
But some projects offer better returns than others.

What you get out of a renovation when you sell your home depends on the update’s universal appeal and how well it compares with similar properties, said Colleen Quinn, designer and owner of Red Bird ReDesign in Washington DC. For example, updated kitchens and master suites are often appealing to new buyers, she said.

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“It is important to make investments that will be the best use of your money,” Quinn said. “We don’t want to put in custom details that are only for your specific use. Think about things that will be valued by a range of people.”

With a full kitchen renovation, homeowners can recoup about 59% of the cost, and a new master suite will typically return 50%, according to a study from the the National Association of Realtors and the National Association of the Remodeling Industry. But the highest returns come from less flashy projects.

Installing hardwood flooring, for instance, will get you back even more money than you put into it, returning about 106% of your cost. Replacing the HVAC — or heating and cooling system — will recover 85% of its cost, while an insulation upgrade will recoup 84%.
How do you decide if a project is worth it?

Best projects for the price

Most existing homes can use some kind of work when they come on the market.
 
“Very rarely does a seller have a house in perfect condition to sell,” said Chris Highland, an agent at eXp Realty in Frederick, Maryland.
But an older home that needs work can be an opportunity when it comes time to sell.
 
Highland has a five-bedroom, two-story, brick Colonial on the market that, having been “lived in hard” by a family for 21 years, would list around $250,000. The owner was willing to do $50,000 in renovations, including a new kitchen, updated bathrooms and new flooring throughout. After the renovations were done, the home was listed at $415,000 and is now in contract.
“There was a lot of work done,” said Highland. “But it wasn’t over the top and it was done in a way that is appealing to many buyers.”
 
 
And while a $50,000 renovation may not be in the cards for everyone, Highland says some of the biggest bang for your buck comes from smaller projects.
“New carpet and paint are dirt cheap,” he said, “They are the easiest thing to do for the highest return.”
 
You get the best return on investment by focusing on the main living areas, the kitchen, bathroom and the master suite, followed by the flow of the house, said Shane Steele, vice president of marketing at Sundae, a California-based real estate investment company.
Keep the fixtures and finishes somewhat neutral, she said, so they will be more appealing for multiple buyers. “Add the flair with your decor that can be taken with you when you leave.”
 
And while a neutral palate and a universal appeal should be the goal when renovating, retaining original details can help a home stand out.
“Where possible you should try to preserve the bones of the house,” she said. “Any details like crown molding, arches, built-in shelves should stay, because there is demand for character.”

Too much renovating or not enough?

With some projects, you likely won’t get back all the money you put in. Creating an organized closet may improve your life, but it doesn’t go very far on the resale market.
 
Only 40% of a closet renovation is recouped, according to the study. The estimated cost of closet remodel is $6,300 and about $2,500 of that is recovered in a sale.
 
While renovations of additional living spaces like the attic or basement will recoup more than half their cost according to the study, Highland said they are less desirable than kitchens or bathrooms.
Avoid customization and focus on features that have mass appeal, said Quinn.
 
“People get their hearts set on a particular thing,” she said. “A spa shower. Imported lights. A particular kind of tile. Sure, if you’re going to be here forever. If not, the next person isn’t going to value that and you won’t get your money back.”
 
Similarly, she said, people can go too far with open concept. Taking out all the walls to improve flow may be appealing to future buyers, but they will still want to see a place where they can put their sofa and television.
 
Under-renovating can be a problem, too. Within a given price range or neighborhood, buyers expect a certain quality of materials and level of finishes, she said.
 
“In some areas there is an expectation that a new floor would be hardwood instead of laminate,” Quinn said. “If you put in laminate floors, that would be detracting for buyers. Better to not do the renovation, if you’re going to go so far low that a buyer would pull it right out or not buy because of it.”
 
WRITTEN BY ANNA BAHNY FOR CNN.COM

Millennials’ Share of the U.S. Housing Market: Small and Shrinking

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Because homeownership is the chief builder of wealth, the trend is ‘bad news for the economy overall’

From the WASHINGTON POST:  Today’s young adults are starting their lives on drastically different financial footing than their parents did decades ago. Necessities cost far more and wages have flattened; as a result, many young families have to dig through mountains of debt before they can even think about growing their wealth.

data point from the Federal Reserve, highlighted recently in a special report on housing by the Economist, underscores the differences between millennials’ financial trajectory and those of earlier generations: In 1990, baby boomers, whose median age was 35, owned nearly one-third of American real estate by value.

In 2019, the millennial generation, with a median age of 31, owned just 4 percent.

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Millennials, many of whom are entering their prime home-buying years, are likely to make up some of that gap by the time they see 35. But they’re not likely to reach 30 percent of the housing market — or even the 20 percent attained by the smaller Generation X at the same point in their lives.

Because homeownership is the chief builder of wealth for middle class families, if this trend continues “we’re looking at a generation that will have lower lifetime wealth,” said Jenny Schuetz, a housing policy expert at the Brookings Institution. “That’s bad news for the economy overall, not just millennials,” she added.

The challenge facing would-be millennial home buyers is two-pronged. In many of America’s most desirable cities, the median price of a home is well beyond the reach of a typical salary. For the past several decades, developers in major metro areas like New York City have built a glut of luxury condos while ignoring the needs of the middle class. Strict land use and zoning regulations, as well as opposition to new development by many existing homeowners, have exacerbated the problem.

Millennials’ massive debt burdens also make it difficult to them to save for a down payment at any housing price. For households headed by someone younger than 35, median debt ballooned from $21,000 in 1989 to $39,000 in 2016. During that same time period, the percentage of under-35 households with student loan debt more than doubled, from 17 percent to 45 percent, and their median debt more than tripled, from $5,600 to $18,500.

These factors are propelling us toward an inflection point. As baby boomers slowly age out of homeownership, a projected $13.5 trillion in housing inventory will come on the market in the coming years. But millennials and younger generations might not be able to afford them.

“At some point, boomers will want/need to sell their houses, and it’s not clear that millennials will be able to pay what boomers think their homes are worth,” Schuetz said.

On the other hand, some of those boomers will leave their estates to their children. “Millennials whose parents are sitting on lots of housing wealth will have an easier time paying for college or coming up with a down payment — even if they don’t inherit for a while, they have a family safety net,” Schuetz said. So it’s likely that millennials will rapidly bridge some of the housing gap visible in the chart above.

One mystery remains however: As things stand, the share of housing wealth accumulated by American millennials is falling — in 2016 it reached a high of 7.5 percent and has been declining steadily since. Conversely, boomers and members of the silent generation have seen their collective share of the American housing market rise about 5 percentage points since 2016.

Schuetz says the reason for that drop isn’t immediately clear. It could be, for instance, that real estate currently owned by older generations is appreciating more rapidly in value than that owned by millennials.

Regardless, the downward trend suggests that the current pressures facing would-be millennial home buyers aren’t easing anytime soon.

WRITTEN BY CHRISTOPHER INGRAHAM FOR THE WASHINGTON POST

 

New playground being installed on Larchmont

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FROM LARCHMONT CHRONICLE:  Work is expected to be underway this month for the long-anticipated playground pilot project being installed on a small portion of the surface parking lot on Larchmont Boulevard. Initially conceived by neighborhood associations and supported by Councilmember David Ryu and the staff and board of the city’s Dept. of Recreation and Parks (RAP), the 1,200-square-foot playground for young children accompanied by parents or guardians is expected to take about four weeks to install. An opening is expected as early as next month.

PPP-for-Jan-web-400x267Nearly two years ago, letters supporting the idea came to the city from merchants  (the Larchmont Boulevard Association — LBA), from residents south of Beverly Blvd. (the Windsor Square Association — WSA) and north of Beverly Blvd. (the Larchmont Village Neighborhood Association), from the Hancock Park Homeowners Association, from the HOPE-NET producers of the Taste of Larchmont and from the LBA producers of the Larchmont Family Fair. The LBA’s liaison with the Sunday Farmers’ Market learned that the market organizers “will not object” to the potential loss of the parking spaces to be converted into the small playground.

Based upon this almost universally positive response, landscape architects in the city’s RAP got to work on a detailed design process. The resulting playground, which replaces one out of four rows of parking spaces on the lot at 209 N. Larchmont Blvd., next to Bella Cures, will have landscaping as well as areas for child play and seating for supervising adults.

The playground design, as it has evolved under the leadership of RAP’s lead landscape architect, features multiple colorful spaces for child play.

There is a jumping game near the entrance from the Larchmont sidewalk. Further inside are log balance beams, “sprout”-themed structures for climbing, and low, brightly colored “mounds” for the littlest children. Three new trees, two palo verdes and one jacaranda, will be planted, along with new shrubs.

     

Opening hours will be similar to other city playgrounds, from after dawn to dusk. The playground is lighted, and it will be secured overnight by locking its entrance. Also, the LBA and its security contractor, SSA, will take an active interest in the well being of the playground and its occupants, including the playground’s opening and closing every day.

WRITTEN BY JOHN WELLBORNE FOR THE LARCHMONT CHRONICLE
Direct Link: https://larchmontchronicle.com/new-playground-being-installed-on-larchmont/


 

 


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