Eye on Santa Fe

The Tax Cuts and Jobs Act – What it Means for Homeowners and Real Estate Professionals

The National Association of REALTORS® (NAR) worked throughout the tax reform process to preserve the existing tax benefits of homeownership and real estate investment, as well to ensure as many real estate professionals as possible would benefit from proposed tax cuts. Many of the changes reflected in the final bill were the result of the engagement of NAR and its members, not only in the last three months, but over several years.

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December 31, 2019

Happy New Year — A Look Forward

As we come to the end of the year, we can look back and see plenty of pot holes the economy had to overcome. But the economy did overcome the challenges and we had a very good year — for stocks, bonds and real estate. Of course, that is all old news. What we all want to know is what 2020 will look like. As in any year, there are a modicum of predictions. And none of these highly paid economists or analysts are likely to really be able to predict the future. But it is all interesting to see what they say.

For the U.S. economy overall, Kiplinger expects growth of 1.8% in 2020, compared with an expected 2.3% in 2019 and 2.9% in 2018. Business spending in the U.S. has been subdued by uncertainty about a trade deal, the fallout from Brexit and angst over the presidential election. But with unemployment at decades-long lows, consumers, who account for the bulk of the U.S. economy, remain a strong underpinning. Kiplinger expects the unemployment rate to inch up to 3.8% in 2020 from 3.6% in 2019, and the Fed to cut rates at least once early in 2020. “The economy is in a tug-of-war between geopolitical risk and the underlying resilience of the American household, plus the Fed,” says Mike Pyle, global chief investment strategist at BlackRock.

As far as real estate, sales of new homes probably will rise to a 13-year high in 2020 as the U.S. dodges a recession, according to Lawrence Yun, chief economist of the National Association of Realtors®. New-home sales probably will jump 11% to 750,000, according to Yun’s new forecast, which would be the highest reading since 2007. Sales of existing homes likely will increase 3.7% to 5.56 million in 2020, the highest tally since 2017, Yun said. “Some loosening in inventory will happen in 2020, and so we expect home sales to rise,” Yun said. “We’ll see an increase in inventory, but not any oversupply, so home prices should continue to move higher – our hope is in a much tamer fashion.”

Scott Robinson, Gateway Mortgage Group

REAL ESTATE NEWS

Veterans may be eligible to buy larger homes in pricier communities—still without a down payment—starting next year. Those taking out Veteran Affairs–backed home loans will find caps removed on what they can spend in 2020. The Blue Water Navy Veterans Act of 2019 removed the caps for the new year. But military members on active duty and veterans will still need to qualify for the home loan and verify they can afford the monthly payments. “It gives the veterans the opportunity to buy homes in the areas they want to buy in,” Kyle Reed, a real estate pro with Pauly Presley Realty in Austin, Texas, told  realtor.com®. “It opens up some areas in cities to VA loans … that maybe veterans didn’t have access to before without putting a bunch of money down.” VA loans have been capped at different amounts nationwide. If they stayed within the loan limits, they could get a 0% VA loan. Under the new rules, vets can get a loan amount in what they can qualify for and are not bound by city caps. Banks can still put in some restrictions to protect themselves against defaults. For example, some lenders may require higher credit scores or debt-to-income ratios in qualifying for the loans,  realtor.com® reports. Source:  realtor.com®

“Tis the season in the real estate industry — the forecast season, that is. And one prediction from  Realtor.com anticipates the U.S. housing market continuing to slow in 2020, with inventory bottoming out and affordability taking more of a hit.  Realtor.com’s forecast comes despite generally rosy current conditions for the home-purchase market, with low interest rates and consumers showing an eagerness to spend. Qualifying for a home loan in 2020 could even be easier on paper,  Realtor.com added, due to stabilizing home prices and the favorable rate environment. Rates on home loans are expected to reach 3.88% by the end of 2020, with price appreciation for existing homes moderating to 0.8% annually. Even though some observers expect inventory relief through increased new-home construction, supply constraints that have persisted since 2005 continue to present strong downward pressure.  Realtor.com expects this to dent an otherwise strong market.  Realtor.com expects existing-home sales to fall by 1.8% in 2020 as inventory drops to an historic low point, due to a steady flow of demand coupled with declining seller sentiments. Ongoing concerns over the uncertain U.S. economy will give baby boomers little incentive to sell in 2020. And even though Generation X is more likely to upsize and boost the supply of starter homes, it’s likely that they won’t do so fast enough to offer adequate supply reinforcement. These inventory issues will continue to hurt first-time buyers the most, with the biggest shortages occurring at the lowest price tiers. Construction of new homes in 2019 was largely concentrated at higher price points, offering little relief for entry-level congestion. Source: The Scotsman Guide

Fewer new homes are being built with a fireplace, a sign the cold-weather amenity is falling out of favor with home buyers. A record low percentage of newly constructed single-family homes—41%—last year included a fireplace, according to an analysis of U.S. Census Bureau data from the National Association of Home Builders. The share of single-family homes with fireplaces has been declining since 2015, the NAHB reports. “An obvious explanation for the declining trend is that builders are foregoing fireplaces in some of their homes so they can bring them in at prices their customers can afford,” the NAHB reports on its Eye on Housing blog. “Keeping new homes affordable has become a considerable challenge lately.” Fireplaces are usually considered a desirable amenity but not a must-have, the NAHB notes. Fifty-five percent of buyers’ rate gas-burning fireplaces as desirable, while 48% say the same of wood-burning fireplaces as desirable, according to the survey. That places such features in the middle of the list of decorative features most sought-after in terms of desirability, according to the NAHB’s “What Home Buyers Really Want” survey. However, only 16% of buyers say either type of fireplace is essential in a home purchase. Source: NAHB

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