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Rising Home Prices Mean Great News for Homeowners

by KCM Blog

Recently there has been a lot of talk about home prices and if they are accelerating too quickly. As we mentioned before, in some areas of the country, seller supply (homes for sale) cannot keep up with the number of buyers who are out looking for homes, which has caused prices to rise.

The great news about rising prices, however, is that according to CoreLogic’s Homeowner Equity Report, the average American household gained over $14,000 in equity over the course of the last year, largely due to home value increases.

The map below was created using the same report from CoreLogic and shows the average equity gain per mortgaged home during the 1st quarter of 2017 (the latest data available).

 

For those who are worried that we are doomed to repeat 2006 all over again, it is important to note that homeowners are investing their new-found equity in their homes and themselves, not in depreciating assets.

The added equity is helping families put their children through college, invest in starting small businesses, pay off their mortgages sooner and even move up to the home that will better suit their needs now.

Bottom Line

If you are a homeowner looking to take advantage of your home equity by moving up to your dream home, let’s get together to discuss your options!

Homeowners: Your Home Must Be Sold TWICE

by KCM Blog


In today’s housing market, where supply is very low and demand is very high, home values are increasing rapidly. Many experts are projecting that home values could appreciate by another 5%+ over the next twelve months. One major challenge in such a market is the bank appraisal.

If prices are surging, it is difficult for appraisers to find adequate, comparable sales (similar houses in the neighborhood that recently closed) to defend the selling price when performing the appraisal for the bank.

Every month in their Home Price Perception Index (HPPI), Quicken Loans measures the disparity between what a homeowner who is seeking to refinance their home believes their house is worth, as compared to an appraiser’s evaluation of that same home.

Bill Banfield, VP of Capital Markets at Quicken Loans urges anyone looking to buy or sell in today’s market to remember the impact of this challenge: 

“While a 1 or 2 percent difference in home value opinions may not seem like a lot, it could be enough to derail a mortgage.

A homeowner [or a buyer] could be forced to bring more cash to closing in order to make a mortgage work if the appraisal is lower than expected. On the other hand, if an appraisal comes in higher, they could be surprised with more equity than they had planned. Either way, if owners are aware of their local markets it will lead to smoother mortgage transactions.”

The chart below illustrates the changes in home price estimates over the last 12 months.

Bottom Line

Every house on the market has to be sold twice; once to a prospective buyer and then to the bank (through the bank’s appraisal). With escalating prices, the second sale might be even more difficult than the first. If you are planning on entering the housing market this year, let’s get together to discuss this and any other obstacle that may arise.

A little-understood provision of the state constitution will provide property-tax relief for homeowners across the state next year, but it could have cascading financial consequences for virtually all levels of Colorado government.

Gov. John Hickenlooper in his State of the State address on Thursday highlighted the immediate problem for Colorado’s budget: a projected $170 million cut to school districts across the state in 2018, which the state is required by law to replenish from its own coffers.

“The constitutional budget constraints for school finance are the thorniest part of our fiscal thicket,” Hickenlooper said, urging lawmakers in both parties to come together to find a solution.

But local governments, too, are bracing for the fallout — especially those counties, cities and special districts that rely heavily on residential property taxes. Even those that don’t could feel the pinch. In the past, the state has cut tax distributions to local governments in order to meet its growing school funding needs.

“It’s more than a ripple (effect),” said Kevin Bommer, deputy director of the Colorado Municipal League. “It’s like throwing a boulder in a lake.”

Since 2003, the assessment rate for residential properties has been unchanged, at 7.96 percent of market value. Next year, according to a study released Friday by the Department of Local Affairs, that’s projected to drop to 6.56 percent. Local officials apply that rate to their tax levies to calculate how much property owners owe.

Statewide, the total assessed value of property is expected to grow slightly over the next three years under the new formula, but that’s driven by the Denver area. Other parts of the state are expected to see revenues fall, according to a forecast from the Colorado Legislative Council.

Gini Pingenot, legislative director for Colorado Counties Inc., said the impact will vary from place to place, but for some local governments, the cut could be severe.

In places that can’t adjust their tax levies to compensate, that would represent an 18 percent drop in residential tax collections, not accounting for any growth in the local housing market.

So what is Gallagher?

Known as the Gallagher amendment, the constitutional measure was approved by voters and adopted in 1982 in response to homeowner concerns over rising residential property taxes. It  requires that residential assessed values comprise no more than 45 percent of the state’s overall assessed value. Non-residential properties make up the remaining 55 percent.

Most years, Gallagher doesn’t come into play. If commercial values and home values rise at a similar pace, there’s no need for an adjustment.

But when there’s a housing market boom — as there has been over the past several years — coupled with a business downturn, like the recent dip in the oil and gas industry, homeowners can wind up contributing more than their 45 percent share. That throws the ratio out of whack, triggering a mandatory tax cut for homeowners under the state constitution.

The Taxpayer’s Bill of Rights adds another layer of complexity. Gallagher can trigger an automatic reduction in the assessed rate, but under TABOR, the rate can’t go back up without voter approval. So when commercial growth outpaces home values, and residential values drop below 45 percent, the rate doesn’t adjust.

“You never really get back any of that that you lose when you adjust this downward,” said Todd Weaver, the budget manager for Arapahoe County.

When the amendment was first adopted, the assessment rate for commercial property was 29 percent, and the residential rate was 21 percent. Today, the commercial rate is still 29 percent — but the residential rate has plummeted to 7.96 percent.

No easy fix

Lawmakers in both parties acknowledge the challenges Gallagher poses, but solutions are elusive.

State Rep. Millie Hamner, the top Democratic budget writer, put it bluntly at a Joint Budget Committee hearing in December: “I’m feeling choked by the Gallagher amendment,” said Hamner, of Dillon.

In a meeting with The Denver Post’s editorial board this month, Senate President Kevin Grantham, R-Cañon City, said it’s a simple fix but not an easy one: “You repeal Gallagher.”

“What you’d be asking people to do is to raise taxes on their own homes by repealing Gallagher,” Grantham said. “So what are the odds of that? Not very good.

“But as far as equity in the system, that’s exactly what should happen if we’re going to bring equity back to the entire system without putting the beast on the back of all the businesses here in Colorado to the tune of four times the taxes and increasing.”

Because the 45/55 ratio is set statewide, Gallagher doesn’t take local market conditions into consideration. That means the formula is driven by what happens in the Front Range, where the bulk of the state’s population lives.

So next year, homeowners in Denver will see some tax relief from their soaring home values. But so, too, will homeowners in other parts of the state, where home values might be growing more slowly or even declining.

On the West Slope in Mesa County, budget cuts in prior years had already left county commissioners mulling a sales-tax hike to pay for law enforcement and criminal justice needs.

Scott Stewart, the county’s chief financial officer, said the district attorney’s office had been cut so severely that last year, when a police officer was shot and killed, the office had to move money from elsewhere just to hire someone to investigate the case.

“They have to sometimes plea bargain cases that maybe should be prosecuted a little stronger,” Stewart said.

With the Gallagher amendment changes, Stewart is looking at a $964,000 drop in residential property-tax collections. That’s despite home values rising by 10 percent.

6 tips for timing a real estate purchase

by Allison Simson

How fence-sitters can get a jump on the competition

Question:  Allison, we are considering buying a townhome in Wildernest, but have been unable to “pull the trigger!”  Do you have any suggestions about timing the market? 

Answer:  That’s the million dollar question!  First, you won’t know when the market has hit bottom until it starts to go up, so timing is difficult at best.  According to Dianne Hymer of  Inman News, in mid-June, interest rates on home loans were lower than they were a year ago. However, this failed to ignite the housing market. Many buyers and homeowners would like to make a move, but some find it impossible to make a decision. They are commonly referred to as fence-sitters, poised to make a move when the time seems right.

The housing market is unlikely to make a quick turn-around anytime soon, but this doesn't mean that now is not a good time to buy or sell. It depends on your personal situation and market conditions in the area where you plan to buy or sell.

Become an expert on your local market. Knowing a good deal when you see it or what price to ask if you decide to sell depends on having a good understanding of how much properties are selling for in your neighborhood.

While you're trying to decide what to do, line up a team that can help you accomplish your goal when you decide to move ahead. You can do this by researching online, attending open houses in the area and asking a real estate agent to keep you on top of market fluctuations.

Your decision to buy should be based on your personal financial situation, not on the national or global economy. For example, if you bought during the bubble market and are now getting divorced, you'll probably sell for less than you paid.

But, if the house is too expensive for one to support, it may be cheaper in the long run to cut your losses and sell now. No one knows how long the housing downturn will last. Prices could move lower before rebounding. This is not an ordinary recession.

Don't get caught up following the herd. Just because most people in your area aren't buying or are having difficulty selling doesn't mean that you shouldn't make a move. Just make sure if you're a buyer that you have job security, a relatively healthy economy in your local area and a plan to stay put for at least 10 years.

The housing market will be volatile going forward. Good economic news will help fence-sitters make the decision to get serious about moving. Bad news of any sort can cause the market to stall. To take advantage of the upticks in the market, you need to be prepared in advance.

Find a good local real estate agent to work with who understands your needs, and wait to buy or sell until the time is right for you. It could take you a year or so to make the final decision. Some agents don't have the patience to stick it out.

Select an agent who will educate you about the market and the idiosyncrasies of the home-sale business in your area. Ask to be kept informed about sales in the area. Many agents are set up to do this electronically, which is an easy way to keep you informed without taking up a lot of the agent's time.

One of the most difficult aspects of the current home-sale business is financing the transaction. Find a loan agent or mortgage broker who is a real professional, has been in the business for years and who understands what current underwriters will require from you to process your loan.

Assemble all the financial documents you'll need for loan approval even before you start looking. Ask your agent or broker to have your loan package previewed by an underwriter so that you know beforehand if there are any problems.

Remedy these in advance so that they don't cause last-minute delays in closing. Copyright Inman News.

 

 

For answers to your real estate questions, call Allison at 970-468-6800. Email - [email protected]. Her philosophy is simple, whether buying or selling, she understands that the most important real estate transaction is yours.  Want to know the value of your Summit County property? Visit www.SummitHomeValue.com  

What's a QRM?

by Allison Simson

Hope you're enjoying your summer.  Our sweet, mountain summer is in full swing here in the high country, and despite the rain, it's been glorious!
 
If you haven't heard yet, there's a new bill being purposed by Dodd/Frank that would require all future home buyers to have a 20% downpayment.  It's called QRM...Qualified Residential Mortgage.  VA and FHA loans would be excluded, but all other loans would fall under this new regulation.   Below is an article with the details and following that is a "Call to Action" from the National Association of Realtors.  I try not to mix work with politics, but I am not a fan of this proposed bill.  I'm all for more strict loan requirements so we don't go back to the loose loan requirements of the past that caused the mess we're still digging out of, but this is swinging the pendulum the other way.  
 
Want to buy a house? Downpayment rules might be changing

Published : Friday, 08 Jul 2011, 9:04 PM EDT
By: David Barras
INDIANAPOLIS (WISH) - Could you afford to buy a house if you had to have 20 percent down to get a loan? Fear that federal rules would make that the law has the real estate industry worried.
Kurt Flock has been selling real estate in Indianapolis for 30 years. New rules like the one the federal government is considering, called Qualified Residential Mortgages, or QRMs, don't make sense he told 24-Hour News 8.
"I've coined a phrase for that,” he said. “Quintessential regulator madness."
The rules are part of reforms passed by Congress last year, designed to avoid another mortgage market meltdown.
Flock said he worries about the strictness of the proposed rules."This particular rule would require people to put 20 percent down,” he said. “And it goes further. It will have more stringent income and debt ratio requirements and credit requirements."
The National Association of Realtors is worried enough about the rules and their effect on potential homeowners that it is buying ads like the 3/4 page one found in Friday's Indianapolis Star, trying to convince the federal government that requiring potential homebuyers to put 20 percent down is the wrong kind of reform.
"It's a way over-the-top response to what turned out several years ago to be some very poor underwriting standards,” said Louis Zickler, sitting in his office in downtown Indianapolis.
The real estate appraiser and a past president of both the Indiana Association of Realtors and the Metropolitan Indianapolis Board of Realtors said making a mandatory down payment rule makes no sense.  "It's being able to make the payment is more important than how much do you have to put down," he said.
Some loans, including FHA, VA and those insured by Fannie May and Freddie Mac, would be exempt. Much lower down payments, as low as zero percent for VA and 3.5 percent for FHA would still be allowed for those. But the industry believes a mandatory 20 percent down payment for any loan doesn't make sense.
"The fear is this will really eliminate the opportunity for a lot of people,” Flock said, “or increase the cost of borrowing. That puts homeownership that much further out of reach."
The proposed rules would also require lenders to keep 5 percent of the value of a non-qualifying mortgage on reserve, possible making it less likely they will make those loans. And most lenders don't like the proposed rules either.
The public comment period is ongoing for the rules under consideration. They haven't been adopted yet, and the ad is just one example of the high-visibility campaign against it. Aug. 1 is the deadline. Then the feds will make a decision.
 
CALL TO ACTION
From the National Assocation of REALTORS:  Help Keep the Dream of Home Ownership Alive. Stop the 20% Down Payment Requirement.  A new and costly rule called Qualified Residential Mortgage, is being considered right now by federal regulators. If the proposal goes through, it will require homebuyers to make at least a 20% down payment on a home purchase. The federal regulators have taken a new law passed by Congress intended for banks to do a better job of securing loans and instead are trying to turn the rule into a penalty on homebuyers.
Forget the idea of a 10% down payment or even a negotiated amount. It’s a fact: many hard-working, credit worthy Americans have a difficult time saving for the down payment to buy a home. If enacted, the new federal regulation will make it even more difficult for many Americans to buy their next or first home. Suppose you wish to purchase a $200,000 home. The proposed 20% down payment means you will need at least $40,000 upfront to satisfy Uncle Sam’s requirement. Similarly, in high cost areas, on a $500,000 home purchase, you’ll be required to put up at least $100,000.
Click here for more info:

http://www.homeowneractioncenter.com/

And now for your Tuesday Coffee....."Don't rely on someone else for your happiness and self worth.  Only you can be responsible for that.  If you can't love and respect yourself - no one else will be able to make that happen.  Accept who you are - completely; the good and the bad - and make changes as YOU see fit - not because you think someone else wants you to be different."    ~   Stacey Charter
 

 
As always, our success is dependent on

your continued support and referrals.  

Who do you know that's planning a move to the mountains?

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Photo of Summit Real Estate Real Estate
Summit Real Estate
The Bright Choice
330 Dillon Ridge Way, Suite 10
Dillon CO 80435
970-468-6800
800-262-8442
Fax: 970-468-2195

Allison Simson, Owner/Broker, is a licensed Colorado Real Estate Broker