It’s a great time to sell, buy -- or both?
By Al Ricci
2018, so far, has been a great real estate year, with our local market outpacing 2017. Home prices continue to increase according to the economic forecasts from Chapman University and Cal State Fullerton. Both expect real estate prices to increase 5-6 percent in 2018, and we’re well on our way to exceeding those expectations.
How does that compare to the interest you are earning on savings?
So, why is inventory so low that it is creating an upward pressure on home prices?
Current homeowners have a $250,000/single or $500,000/married tax exclusion on their profits on a sale over their adjusted basis. Many homeowners in a longtime rising market, are forced to stay in their homes or pay over a 30 percent gain on taxes if they move.
If homeowners are under 55 years old and cannot take advantage of the one-time tax transfer of their real property taxes to a replacement residence, the tax increase may be much more than they want to pay.
In recent years, mortgage rates have been historically low. For example, I personally have a 2.75 percent interest rate on my home. If I moved today, my interest rate, at best, would be 4.5 percent.
With the limited amount of inventory, there’s not a lot of replacement inventory to choose from.
The new tax law limits the new mortgage interest deduction on a loan less than $750,000 and property taxes (all taxes) less than $10,000 per year, which again discourages move-up buyers on the flip side.
First-time buyers are finding it difficult to afford entry into homes. With rising prices, and increasing interest rates, affordability goes down, resulting in potential homebuyers either forced to rent, or moving inland to Riverside/San Bernardino Counties or out of state.
Homeownership is at a 50-year low, but less than 65 percent of all real estate is non-owner occupied, which is forcing a demand and rising prices in the rental market up to record levels.
There’s less of a desire for setting a goal for homeownership than in decades past. The younger generation sees the benefit of instant mobility, less commitment and upkeep of a home, less benefits in tax deductions, and a fear that “what goes up ... must come down.”
As an investment, real estate is a long-term commitment. Ask any landlord or homeowner who has owned a property for an extended amount of time if they made the right decision. They will tell you that at the time they may not have realized it, but it was the best investment they ever made. For many, it’s now their retirement fund and the means to support their future generations.
I love real estate and what it has done for my family over the past 30-plus years. Giving up the practice of law for a career in real estate was the best decision I ever made. Did I feel like I overpaid for property at times? “Yes,” but in retrospect, it’s all relative, and in the long run it pays off.
So the answer to my title question is ... It’s always a good time to buy or sell, as long as you can afford it!