As we begin the new year, it’s important to recall the milestone events that took place in the world of residential real estate this year, as well as look forward.
Here’s a look at some of the biggest events that took place in 1997:
Huge Tax Break for Homeowners. No matter what gifts you received this past holiday season, it can’t possibly compare to the tremendous gift homeowners got this spring, courtesy of President Clinton’s tax relief package.
With one swipe of the presidential pen, Clinton effectively changed the way homeowners calculate profit on their home sales. The old method required homeowners to keep track of all their expenses of purchase, capital improvements, and sale from house to house, using a relatively complicated formula that many folks simply couldn’t keep straight. Once you calculated your profit, you’d have to buy a replacement home within 24 months that cost the same as or more than your profit from the sale of your previous residences, or pay capital gains tax.
The new method takes each house as a single unit. Current tax law requires that you keep track of the costs of purchase and sale, as well the costs of capital improvements (essentially everything except paint, wallpaper and decorating, including replacing the roof, repairing the foundation, replacing fixtures and appliances).
When you sell your home, you then take the costs of purchase, sale, and capital improvements and subtract that total from your sales price. What you have left is your profit. If your profit is $250,000 or less ($500,000 or less if you’re a married couple), then you pay no capital gains tax, even if you don’t buy a replacement home. Should you have capital gains higher than those levels, you will have to pay some capital gains tax.
Best of all, you can use the new capital gains levels once every 24 months, a tremendous incentive to those homeowners inclined toward fixer-uppers.
Bottom line: This could be the biggest financial gift you’ll ever receive.
Mortgage Interest Rates. Mortgage interest rates ended 1997 at their lowest levels of the entire year. Those of you who have been rushing out to refinance can thank the tumbling Asian markets for this gift. In fact, rates are so low that they’ve about reached the levels they were at in 1993, which were the lowest interest rates in 30 years.
The best news, however, is that the past four years have seen a shift in the mortgage market to a more highly competitive, technologically oriented process, that passes on some of the cost savings to consumers. In addition, no-point, no-fee loans have become so commonplace that you need not seek out a highly specialized mortgage broker to find one.
Best of all, interest rates are expected to stay low well into the middle of 1998. If anyone other than Alan Greenspan gives you an outlook longer than that, I wouldn’t bet two cents on it.
Bottomline: If you’ve had your head in the sand and haven’t refinanced, get out there. Just be prepared for the avalanche of information mortgage lenders need and get it ready ahead of time. Otherwise you’ll find yourself swimming uphill as lenders work on “easier” deals.
Record Number Of Home Buyers and Homeowners. If you were selling this year, you got another present — a record number of home buyers all vying for your property. Unfortunately, if you also had to buy, you might have found it easy to unload your home and much more difficult to find something else to replace it.
According to the National Association of Realtors, existing home sales were expected to top 4.4 million during 1997. That is significantly better than the record-breaking 4.1 million units sold in 1996, and still better than the 3.8 million sold in 1995. In other words, since 1994, homes have been selling at record-breaking paces, with each year surpassing the one before.
If you add in new home sales, you’re also looking impressive numbers. According to the National Association of Home Builders, single-family housing starts are expected to be 1.15 million in 1997, slightly below the 1.16 million level for 1996. New construction sales in 1997 were 802,000, just below where they were in 1996. As one home builder put it, developers just can’t build them fast enough to meet demand.
Of course, all this building, buying and selling explains the tremendous rise in home prices in much of the country. In some parts of California, home prices shot up an astounding 45 percent from 1996 to 1997. In one Chicago neighborhood, prices rose 26 percent in a single year. But generally, home prices rose a respectable 3 to 6 percent.
The number of homeowners is rising, too. It currently stands at just about 68 million homeowners. With continued low interest rates, and a solid economy, that number is expected to inch up even further next year.
Bottomline: If you’re going to sell in 1998, put your home on the market as early in the year as possible to avoid some of the competition. Buyers should also shop early for a good selection. Just don’t expect bargain basement rates.
The Internet. The numbers keep adding up. America Online has 10 million users, CompuServe has five million, and Microsoft Network has 3 million. Add to that all the independent and company servers, and the numbers of folks who surf the Internet has exploded in the past year.
For home buyers, sellers and owners, the information on the web has never been this good or plentiful — unfortunately, you might go through a lot of useless information to get to the good stuff.
According to Bradley Inman, publisher of the Internet-based Inman News Service, there are between 25,000 to 100,000 real estate-related web sites out there in cyberspace. You can find national lenders and real estate agents and local mortgage brokers. You can apply for a loan online or view homes across the world.
Bottomline: The Internet is getting easier to use. You can find great information and get your questions answered at nearly all hours of the day or night. Where should you start? Try the International Real Estate Directory, at www.ired.com. Just remember, send no personal or financial information over the Internet unless you’re sure the site, and your signal, are secured.
Published: Dec 22, 1997