The Columbia SC economy has some things in common with other housing markets throughout the country. Despite substantial improvements in home prices in 2015, there are still a large number of borrowers "underwater" on their mortgages. This article will look at the reasons why this dilemma is still true for many homeowners.
Columbia SC Economy Challenging for Some
As home prices rose in the last year, so also rose the hopes of more than 1.5 million borrowers who owed more on their homes than they were worth. Those homeowners were able to be rescued from the rising waters of negative equity.
However, there are still twice as many homeowners – roughly 3.2 million – that are underwater, according to Black Knight Financial Services, a well-respected financial data reporting agency. What this means is that more than two thirds of borrowers who have been underwater still find themselves there.
The improvement brought the national average negative equity rate down to 6.5% – a considerable positive change in the aftermath of the housing crash of several years ago. However, the negative equity rate is still much higher than historical, acceptable norms. Of particular concern is that the negative equity is found predominantly near the lowest priced tier of the housing market. Experts say over 16% of borrowers in the lowest priced tier are underwater and are financially paralyzed – unable to sell their homes without losing money, and unable to purchase another home without selling their current home. Ironically, these are the very homes the housing market desperately needs. These starter homes and "fixer-uppers" often represent the only available avenue for young first-time buyers to escape rising rents by becoming homeowners.
Despite four consecutive years of improvement in the number of homeowners underwater, the Columbia SC economy – like many others – has not completely rebounded. Nationwide, statistics show that over half of the homes underwater are in the bottom 20% of the respective housing markets. This, experts say, represents the highest percentage since records have been kept. More startling is this fact: at the existing rate of improvement in home price levels, it would take over five years for the negative equity rate to match that of 2005. That's twice as long as homes in the top level of the housing market.
As is the case with all real estate issues – both good and bad – underwater properties and their statistical impact vary according to location. Some areas of the country are better than others, and some are worse.
Negative equity rates on the lower priced tier is having an ironic impact on price growth in other sectors of the housing market and the Columbia SC economy. Simply put, the reason is supply and demand. Underwater borrowers are less likely to be able to sell and move. Without those homes on the market the supply of affordable homes has diminished greatly. In addition, new construction is centered more on the mid-to-high range homes as builders simply can't afford to build lower priced houses because of higher land and labor costs. As a result, shrinking inventory or lowering supply, is causing higher prices or greater demand for those few homes available for sale on the lower tier.
Adding to the problem of the underwater homeowners not being able to sell and move is a change that experts say is taking place in consumer behavior. Those homeowners who could perhaps find a way to absorb the loss by selling are often unwilling to move as Americans are becoming less mobile and transient. They live in their homes longer than ever before. Economists say this is largely due to recent trends in the overall economy, but especially in the housing sector. U.S. homeowners have seen – and lived through – record numbers of foreclosures, short-sales and other failings of the recent housing crisis. Many have seen the effects of a prolonged recession. Many fear another one is coming. In addition, they're leery of the current employment market. Workers have seen and experienced companies downsizing or closing, and their comfort level with the job market makes them less likely to move.
While the negative equity dilemma continues to slowly improve, its recovery isn't coming quickly enough to positively impact a housing market in dire need of more affordable homes for sale. As if this reality isn't enough of a concern, real estate experts warn that if rising prices create buyer resistance, it will mean an even longer waiting time for underwater homeowners to escape negative equity.
You can find more articles pertaining to the Columbia SC economy in the Columbia SC Economy section of our site below Columbia SC Real Estate Categories in the column to your right.
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The Columbia SC real estate market contains a relatively tight supply of homes for sale. During market conditions in which demand exceeds supply, you'd ordinarily assume that the chances of selling your home would be pretty good. However, homeowners selling older or outdated homes are finding it a little more difficult to sell. To combat this, smart sellers are turning to smart technology to attract prospective buyers. This article will examine some of the smart home technology available in the Columbia SC real estate market.
Making Columbia SC Real Estate Smarter
Selling your home is a competitive undertaking. No matter whether you're in a seller's market or a buyer's market, the homes that get the most attention are the ones that offer the newest, most up-to-date features. If you're over the age of, say, 50 you may remember how "cool" it was for the new refrigerator in your home to have a built-in ice-maker. How about a two-car garage with an automatic door opener? Even homes equipped with motion-detector floodlights were considered "in" just a couple of decades ago. That's why some sellers are electing to ramp up their homes with a little hi-tech to garner attention. They want to show prospective purchasers that their homes are a little more "state-of-the-art" than some homes in the same age range or price range.
According to a survey published in January by Harris Polls for a nationally-known real estate firm, roughly half of all American homeowners either enjoy some type of smart home technology or have plans to invest in it during the remainder of the year. In addition, 70% of survey respondents said they were so satisfied with the purchase or installation of their first smart home product that they were likely to purchase another one.
One of the popular misconceptions about smart home technology is that retrofitting an out-of-date home is too difficult a task or too costly. The truth is, one of the attractive features of some of the technology is the ease of installation and the comparatively affordable cost. More than 50% of current homeowners agreed they would probably install smart home technology because they felt it would help sell their home quicker. To quantify that response in a dollar amount, 65% of respondents surveyed said they would likely pay $1,500 or more to bring their home into the 21st Century. Experts say most homes won't require that much of a smart home investment.
Real estate professionals say a few hundred dollars is enough to add enough smart home technology to make a difference. Citing the gradual lowering of the prices of some of the technology over the past few years, they say it's easily affordable for most sellers interested in positioning their homes for sale. Items such as smart door locks or security cameras can be purchased for less than $500. And smart thermostats are popular with buyers that like the "set it and forget it" advantages of saving energy – and money. More complete home automation systems can be a little pricey, but often pays for itself because of the attractiveness to a potential buyer.
Smart home technology experts in the Columbia SC real estate market suggest these five areas as "smart home starters:"
- A strong Internet connection and Wi-Fi network
- A smart doorbell • Smart door locks
- Smart climate controls
- Smart lighting and lighting controls
Smart technology is no stranger to newer homes and newly built homes. Now, as a result, homeowners choosing to include it into existing homes is becoming increasingly popular, both for the convenience of their owners and in an effort to provide an advantage when the time comes to sell.
Surprisingly, the rate of older American homeowners acquiring some type of smart home technology outpaces younger owners. Forty percent of homeowners aged 65 or older who own smart home products also have smart climate control technology. Comparatively, only 25% of millennials (aged 18-34) have those products.
Real estate agents remind sellers that buying a home is very much an emotional decision. If prospective buyers are able to "connect with the house" through various features that help make the home stand out above the rest, they are more likely to move it to the top of their short list. Smart technology can – and does – give the buyer the impression that the house is modern and is likely well-maintained.
See more articles pertaining to Columbia SC real estate in the Columbia SC Real Estate section of our site below Columbia SC Real Estate Categories in the column to your right. As always, you can find information here on a variety of topics ranging from home buying and home selling tips to home improvements, home inspections, mortgage financing, homeowner's insurance and of course, all the latest Columbia SC real estate news that affects all of these categories.
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Columbia SC tax advantages are one of the many perks to home ownership. Tax deductions are important to those homeowners who itemize when they file their personal income tax returns. With the tax deadline quickly approaching, it's important to know how to calculate your homeowner tax benefits. Here's a brief analysis of how your tax advantages work.
Columbia SC Tax Benefits: How to Calculate
The cost of your primary residence.
If you own a home and have a mortgage, your monthly housing expense is made up of four integral parts: principal, interest, taxes and insurance. The four components are commonly referred to as PITI.
Your monthly mortgage payment to your lending institution includes principal (the amount of money your borrowed) and interest (the contracted percentage rate calculated each month on the outstanding principal balance.) As you make payments, principal reduces the balance of your loan each month, while interest is the cost of borrowing the money paid to your lender each month.
Taxes are real estate property taxes assessed by your county and/or city each quarter, semiannually or annually. Your tax bill is dependent on the assessed value of your home and will vary from state to state
Insurance is comprised of premiums paid to a homeowner's insurance company to protect you and your mortgage lender in the event your home is damaged by a fire, flood, earthquake or other disaster.
Let's take a look at an example of what the PITI payment may be on a typical home.
Say you purchased a home for $300,000 with a 20% down payment. Let's assume you obtained a 30-year fixed rate mortgage at 3.5%. Using a popular mortgage calculator, here's your approximate PITI breakdown:
Principal and interest (the mortgage payment) $1,077 per month
Property taxes (using a U.S. average rate of 1.2% on the $300,000 value) $ 300 per month
Homeowner's insurance $ 75 per month
TOTAL COST $1,452 per month
Annual Columbia SC tax advantages for a homeowner's primary residence.
When you own a home and use it as your primary residence, you are allowed to deduct the annual interest on your mortgage loan and the real estate property tax you pay each year.
Using the above illustration as an example, of the total principal and interest payment of $1,077, around $700 is the interest portion and $377 goes toward paying down the principal. Therefore, the amount of interest you will pay during the year will be roughly $8,400 ($700 per month x 12 months.)
Again, using the example above, the property taxes are $3,600 annually ($300 per month x 12 months.)
Added together, these two amounts — your mortgage interest and your real estate property taxes – total $12,000. That full amount may generally be deducted from your income taxes, (for low-to-moderate-income homeowners.)
How do tax deductions help save money?
In preparing to file your income tax returns each year, you may have heard of a form called Schedule A: Itemized Deductions. That's where you list allowable deductions that are deducted from your income. The result is you pay taxes on a lower income amount.
Schedule A contains line items for mortgage interest and real estate property tax deductions. Using the above example, the IRS allows you to itemize the $8,400 in mortgage interest paid during the taxable year, as well as the $3,600 in real estate property taxes paid during the taxable year.
By itemizing those two allowable deductions, you can reduce the amount of income on which you will pay taxes by $12,000.
To complete the example, let's say you earned a total of $90,000 during the taxable year. The two line item deductions above totalling $12,000 are subtracted or "deducted" from your $90,000 gross income for an adjusted gross income on which you'll be taxed of $78,000.
While different income levels are taxed at different percentage rates, you'd be taxed at roughly a 28% tax rate on this income amount. Estimate the amount of savings the tax deductions save you by multiplying the $12,000 in deductions by the 28% tax rate. That produces an estimated annual Columbia SC tax savings of $3,360. That's the amount of savings you will enjoy by owning a primary residence with a mortgage.
Taking it a step further, if you convert the annual savings of $3,360 to a monthly amount of $280 and subtract it from the total PITI above of $1,452, the net "after-tax benefits" monthly cost is reduced to $1,172.
Additional Columbia SC tax benefits.
There are additional tax advantages for owners of primary residences that should be considered. Points paid to a mortgage lender for the origination or refinance of a mortgage loan are deductible. In addition, home energy credits, deducting mortgage insurance for lower earners and deductions for a home office are all examples of allowable tax deductions. However, each can be a little tricky, so make sure you read the fine print and understand what's allowed. We suggest you get answers from your CPA or tax advisor.
There are other homeowner tax benefits you may enjoy when you sell your primary residence. Single taxpayers are exempt from having to pay capital gains taxes on up to $250,000 in capital gains realized from the profit of selling their home. The exemption increases to $500,000 for married taxpayers. Plus, any money you spent on home improvements or renovations while you owned the property will reduce your capital gain.
The above information applies to primary residence owners. Some of the rules may also apply to second-home owners. Consult your Columbia SC tax advisor for variations on second-home deductions. And, if you own rental property, it's a good idea to also discuss your tax benefits with a CPA or tax professional,
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Columbia SC mortgage holders agree, a mortgage is probably the single largest financial obligation most American homeowners will ever assume. Unlike personal loans, car loans or other consumer loans, the interest rate on a home mortgage loan can add up to a substantial amount over the life of the loan. Conversely, the lower your mortgage interest rate, the more you can save over time. For example, on a mortgage loan amount of $250,000, half a percentage point (.5%) can represent a $23,427 difference in the interest amount paid for the life of a 30-year fixed-rate loan.
Columbia SC Mortgage Search: Rating Rates
In today's digital lending environment, most mortgage lending institutions have made it easy and convenient for borrowers to go online to get information on interest rates, different loan programs and answers to their money questions. Of course, you may still want or need to work with a mortgage broker to assist you in the borrowing process. This is especially true if you have credit concerns, blemishes, bad credit or non-standard sources of income. Most mortgage brokers can offer options available with different lenders to find the best product and service for your specific financial situation. Plus, brokers are often able to find the best interest rates because they search a variety of sources on your behalf.
So, how do you get the lowest interest rate on the Columbia SC mortgage that best meets your needs? Consider these tips from seasoned mortgage brokers.
Tie up any loose ends on your personal finances.
Cleaning up your financial situation prior to applying for a mortgage will help you find a lower interest rate. If your credit score needs a little boost, plan ahead to raise your score by paying your monthly obligations promptly when due, avoiding adding new debt or additional credit accounts, and periodically checking your credit. By checking your credit report on a regular basis, you can better manage or correct any errors that may appear. It's better to address them ahead of time rather than dealing with them during the loan application process.
When it comes time to figure out how much money you qualify to borrow, the mortgage brokers offer this advice. Mortgage lenders analyze your debt-to-income ratio by calculating the relationship of your total liabilities to your gross income. So, brokers suggest, lower the amount of debt you owe by paying down or paying off credit cards, student loans, or other consumer debt to be able to afford a higher priced home. The normal accepted debt-to-income ratio for qualified borrowers is a maximum of 43%. In other words, your total monthly obligations –including the PITI payment you're seeking – should not exceed 43% of your gross monthly income.
In addition, it's important for borrowers to fully understand the relationship between their overall mortgage qualifications and the resulting mortgage interest rate and terms. Among the qualifications are income, job history and stability, other available assets, liabilities, credit score, and source of down payment. Borrowers with good qualifications are likely to enjoy the lowest interest rates available in the Columbia SC mortgage market. Those borrowers are considered by lenders as prime customers based on their ability to repay the debt, and are rewarded with the best rates and terms.
Make the best choice on rate type.
One important decision that most borrowers face is whether to obtain a fixed-rate loan or an adjustable rate mortgage (ARM.) While fixed-rate mortgage loans – as the name implies – have a locked-in interest rate during the life of the loan, an ARM starts with a fixed rate period that typically is lower, but after the prescribed period the rate can vary based on market volatility. The interest rate could increase or decrease.
Both loan types have their advantages and disadvantages. The low cost of ARMs offers a degree of appeal during the initial period, yet because the rates can increase it can make some borrowers uneasy. Fixed-rate loans offer greater rate peace of mind, but can be more expensive in the long run. Usually the deciding factor, according to mortgage brokers, is the length of time the borrower plans to stay in the home. If a borrower plans to own the home for a period of, say, 5-7 years, an ARM may be the best choice. For a borrower planning to stay in the home for a longer period, a fixed-rate loan could better suit his needs.
Consider the term of the loan.
The term of the mortgage loan is also a key component in affordability and in obtaining a lower interest rate. The shorter the loan term, the lower the interest rate. However, with the shorter term and lower rate comes higher monthly payments. For borrowers contemplating a shorter term with higher payments, consider this. If you have a personal financial emergency and are already near or at the maximum payment for which you qualify, the emergency may temporarily impact your ability to repay. Most mortgage experts recommend taking the longer term and – as additional finances permit – make additional principal payments. That way, the loan will be paid down as if it had a shorter term. Simply put, you can always pay down the loan and even pay it off ahead of schedule, but unless you refinance the entire mortgage, you won't be able to reduce your payments once you sign the promissory note.
You can find a lot more Columbia SC mortgage information in our Columbia SC Mortgage Info section of articles to your right just below the Columbia SC Real Estate Categories. We also constantly update mortgage news on Twitter and Facebook. We hope you'll check us out there, too.