What’s Ahead For Mortgage Rates This Week – April 23rd, 2018
Last week’s economic reports included readings on builder confidence, housing starts and building permits issued. Weekly readings on mortgage rates and new jobless claims were also released.
NAHB: Builder Confidence Drops by One Point
The National Association of Home Builders reported that builder confidence dipped by one point in April to an index reading of 69. While any reading over 50 indicates positive builder sentiment, NAHB noted that builder sentiment has decreased for the past four months.
During the housing bubble of 2004 and 2005, builder confidence in market conditions averaged 68, but analysts said that the post bubble crash in home values was preceded by several months of decreasing builder sentiment.
Builders are maintaining a steady approach to housing starts despite high demand in many markets. Short supplies of available homes are driving prices higher and causing issues of affordability for would be buyers. Home builders continued to face shortages of buildable lots and rising materials prices. This could account for decisions not to ramp up home construction enough to meet demand.
Housing Starts, Building Permits Rise
According to the Commerce Department, housing starts and building permits issued rose in March. 1.319 million starts were reported on a seasonally-adjusted annual basis as compared to 1.1,295 million starts in February. Analysts expected housing starts to drop in March to 1.255 million, due to rising materials costs and concerns over trade wars. Housing starts were 10.90 percent higher year-over-year.
Single-family housing starts were lower by 3.70 percent lower than for February, but were 8.00 percent higher year-over-year. This suggests that aside from seasonal fluctuations, home builders are boosting their efforts to keep up with demand for homes.
Building permits issued increased in March to 1.354 million on a seasonally-adjusted annual basis; the February reading showed 1.321 million building permits issued. Building permits issued in March were 2.50 percent higher than for February and 7.50 percent higher year-over-year.
Mortgage Rates, Jump, New Jobless Claims Dip
Freddie Mac reported higher average mortgage rates last week, with the rate for a 30-year fixed rate mortgage rising by five basis points to 4.47 percent. This was the highest average rate for 30-year fixed rate mortgages since January 2014 and the highest weekly rate increase since February. Rates for 15-year fixed rate mortgages averaged 3.94 percent and increased by seven basis points.
The average rate for 5/1 adjustable rate mortgages was six basis points higher at 3.67n percent. Discounts points averaged 0.50 percent for 30-year fixed rate mortgages, 0.40 percent for 15-year fixed rate mortgages and 0.30 percent for 5/1 adjustable rate mortgages.
New jobless claims were lower last week with 232,000 new claims filed. Analysts expected 230,000 new claims based on the prior week’s reading of 233,000 new claims filed.
What‘s Ahead
This week’s economic reports include readings from Case-Shiller Home Price Indices, sales reports for new and previously-owned homes, and weekly readings on average mortgage rates and new jobless claims. A monthly reading for consumer sentiment will be released Friday.
Your Guide To Aging In Place Home Modifications
If you’ve had to watch your parents transition into assisted living, you may have no desire to call such a place home. You are not alone. According to the Aging in Place Housing Survey conducted by the American Association of Retired Persons (AARP), more than 90 percent of seniors want to remain in their home.
Many survey respondents said that they would rather use nursing home funds towards purchasing a home that is suited for aging in place or making accessible home modifications.
You’ve probably heard the buzzwords — aging in place, non-assisted living, universal design — these phrases mean the same thing: growing older in your home. Today, home modifications can help you continue to live in your home as you age. Plus, aging-in-place home modifications are much less expensive than moving into a nursing home or assisted living facility.
The problem is that most existing homes are not conducive to aging in place. There are more than 100 million homes in the United States. However, only one percent of them are currently set up for accessibility. Fortunately, there are a variety of home modifications that you can do to make any home more accessible. Here is a handy guide to accessible home modifications.
Think About Your Future Needs
The first step in making sure your home is suited to aging in place is to consider how your needs might change in the future. Everyone’s situation is different.
If you have a chronic illness, such as diabetes or heart disease, it is best to talk with your doctor to determine how these health issues might make it hard for you to live on your own in the future. Consider what modifications you’ll need to make to ensure that your home will suit your future needs.
For example, if you are thinking of buying a new home with an upstairs, you might use the upper part of the house for your home office now and convert the area into caregiver’s quarters in the future.
Consider a First-Floor Master Suite
An essential home modification for aging in place is first-floor living. Although you might not have mobility issues now, hip replacements and other problems that affect mobility are frequent with increasing age.
Plus, a first-floor suite can increase the value of your home should you sell in the future. According to data from Builder Online, out of the best-selling new home floor plans, more than 83 percent feature accessible master suites.
Choose Slip-Resistant Flooring
Falls are a serious threat to the independence and health of older adults. They are the leading cause of injuries among Americans ages 65 and older. That is why it is so important to take steps to reduce the likelihood of a fall.
One of the easiest modifications that you can make in this area is to choose slip-resistant flooring. Cork and bamboo flooring are both popular for aging in place as they are softer and thus more forgiving during a fall.
These are just a few of the aging in place modifications that you can make to your home. There are many others. The important thing to remember is that you don’t have to sacrifice lifestyle or luxury to have a home that is also accessible.
Many of the above modifications can be made anytime and can help enhance the beauty and comfort of your home. As you plan for your future in your home, please contact your mortgage professional to explore finance options for these and other necessary home modifications.
Best Tax Deductible Home Improvements for Homeowners
Before delving into tax-deductible home improvements, it’s important to understand that these tax deductions won’t be applied immediately. In most cases, homeowners can only benefit, tax-wise, from their home renovations later, when they sell their home.
It’s important for homeowners to keep receipts for their improvements, though so they have proof of the improvements they made, even if it’s years later when they sell their residence.
Typical Renovations/ Home Improvements That Can Yield Eventual Tax Benefits
A home improvement is any project that substantially adds value to a home. It can include adapting it to be more useful or be improvements that allow it to be used differently. The following are some general home improvements that can yield tax savings when a home is sold for a profit.
- Room additions.
- Upgrades to plumbing.
- Kitchen improvements.
- A new roof.
- New bathrooms.
- Upgraded landscaping.
- Improvements to fencing.
- New decks.
- Improved wiring.
- New walkways.
- Driveway improvements.
- Plumbing upgrades.
How Delayed Tax Benefits Work
While a homeowner can’t take the amount of money they spent on one of the above home improvements and deduct it that same tax year, they can sometimes benefit from the investment in their home. This is true because a homeowner can effectively reduce the amount of taxes they have to pay if they sell their home for a profit down the road.
When an improvement is made, the cost of those improvements are added to the tax basis of a home. The basis is the investment in a home for tax purposes. The greater this number becomes, the less the profit is from selling a home.
The following explains it a little better:
Example Of Tax Basis And Home Improvement Tax Savings
A fictional homeowner purchases their home for $600,000 and sells their home 20 years later for $1,000,000. Their original “profit” from the sale would have been $400,000, which would have been taxable income at the time of the sale. However, throughout the 15 years when they resided in the home, this homeowner made around $60,000 worth of home improvements, including a roof improvement and a kitchen update. The $60,000 is then added to the original investment this homeowner made in their home, bringing their tax basis to $660,000.
The homeowner’s profit when they sell their home is then reduced from $400,000 to $340,000. Many homeowners use home improvements as a way to reduce the amount of taxes they will one day have to pay when they sell their home for a substantial profit.
Other Ways For Homeowners To Benefit From Their Home This Tax Season
Homeowners can make their home work for them each and every tax year by qualifying for the home office deduction. This only works if they own and operate a legitimate business out of their home, though. A part of the home must be used either regularly or exclusively for the business to qualify.
The above is some pertinent information on how homeowners can use home improvements to reduce their tax burden. As always, check with your trusted tax professional for accurate advice on your personal situation.
Pros and Cons of Adjustable Rate Mortgages
When you are in the market for a new home, you may be faced with numerous options for financing your home. One of the choices you will have to make is whether to apply for a fixed or adjustable rate mortgage. In some cases, an adjustable rate mortgage (ARM) may be your best option, but keep in mind, they are not the answer for everyone.
Adjustable rate mortgages can be risky for some borrowers and it’s important to understand both the pros and cons.
When To Consider Adjustable Rate Mortgages
Perhaps one of the best things about ARMs is they typically have a lower starting interest rate than fixed rate mortgages. For some borrowers, this means it is easier for them to qualify for a loan. ARMs are beneficial for borrowers who:
- Anticipate an income increase – for borrowers who are anticipating their income to increase over the next year or two, an ARM may be the right option.
- Will be reducing their debt – those borrowers who have automobile loans or student loans that will be paid off in the next few years may benefit from an ARM which would allow them to qualify for a larger mortgage today anticipating their ability to covert to a fixed-rate mortgage.
- Are purchasing a starter home – when you anticipate living in a home for five years or less, an adjustable rate mortgage may help you save money for a bigger home.
Adjustable Rate Mortgage Concerns
There are a number of different types of adjustable rate mortgages and they are each tied to specific interest rate indexes. While an ARM may offer borrowers some flexibility in terms of income and debt ratios, the downsides cannot be ignored. Some of the cons of using an ARM to finance your mortgage include:
- Rate adjustments – borrowers should carefully review their loan documents to see how frequently their interest rates may increase. Some loans adjust annually while other may not increase for three to five years after the mortgage is signed. For borrowers, this means they may anticipate an increase in their monthly payments.
- Prepayment clauses – oftentimes, lenders include a prepayment penalty with ARM loans which can be surprising for borrowers. Before agreeing to an ARM, make sure you read the documents very carefully to determine how long you need to hold the loan and if there is a prepayment clause.
- Home values – one of the biggest challenges borrowers face with an ARM is what happens if the property value decreases: Refinancing a home into a fixed-rate mortgage may be more difficult if this occurs.
Borrowers who are searching for the right mortgage should discuss all options with their loan officer. There are specific instances when an ARM may be the best option and there are other times, such as if you plan to stay in your home for more than five years, where a fixed-rate mortgage may be your best option.
Should You Pay Discount Points When You Get Your Mortgage?
One of the challenges you will face when deciding how much money to put down on your new home is whether to put down a larger down payment or to take a bit of money from your down payment and use it to buy “discount points” to lower your interest rate.
There are pros and cons to doing both and each borrowers situation will be different so it’s important to understand which option is best for your individual situation. Some factors you should consider include:
- Cost of borrowing – generally speaking, to lower your interest rate will mean you pay a premium. Most lenders will charge as much as one percent (one point) on the face amount of your loan to decrease your rate. Before you agree to pay points, you need to calculate the amount of money you are going to save monthly and then determine how many months it will take to recover your investment. Remember, closing points are tax deductible so it may be important to talk to your tax planner for guidance
- Larger down payment means more equity – keep in mind, the larger your down payment, the less money you have to borrow and the more equity you have in your new home. This is important for borrowers in a number of ways including lower monthly payments, better loan terms and potentially not having to purchase mortgage insurance depending on how much equity you will have at the time of closing
- Qualifying for a loan – borrowers who are facing challenges qualifying for a loan should weigh which option (points or larger down payment) is likely to help them qualify. In some instances, using a combination of down payment and lower rates will make the difference. Your mortgage professional can help you determine which is most beneficial to you
There is no answer that is right for every borrower. All of the factors that impact your mortgage loan and your overall financial situation must be considered when you are preparing for your mortgage loan.
Talking with your mortgage professional and where appropriate your tax professional will help you make the decision that is right for your specific situation.
