With Terry Story, a 29-year veteran with Keller Williams located in Boca Raton, FL
Home Equity At Record High
Steve kicks off Real Estate Round-Up with good news on housing. While home prices have gone up, homeowners have also been more diligent about paying their mortgages every month, so outstanding mortgage balances have been declining, resulting in a record increase in tap-able home equity—the difference between what you owe and what your house is worth.
As of September 2017, 42-million homeowners collectively had nearly $5.4 trillion in home equity available to borrow against for home improvements and other expenses. This build-up in home equity is healthy for the stability of the housing market and a positive development.
However, homeowners should be careful about what they do with this low-cost borrowing option and not spend it in depreciating ways that squander the benefit, such as using it to buy a car or boat that’s unnecessary or above your means. Instead, continue to pay down your mortgage and grow your home equity even more because it will represent a significant part of most people’s retirement savings.
Interest On HELOCs Not Tax Deductible
Terry adds that under Trump’s new tax law interest paid on a Home Equity Line of Credit (HELOC) is no longer tax deductible, and that’s an added reason to not tap into your home equity for wasteful purchases. That said, tax laws are subject to change and wise investment decisions should not be overly finessed due to tax reasons, adds Steve, citing the example of a limited partnership investment he made that did not pan out because its tax-deductible feature was revoked after he’d committed his capital.
Florida Leads In Delinquent Mortgages
Switching topics, Terry notes that her home state of Florida has managed to rack up another distinction in the housing market, albeit not one to be proud of. Florida is, once again, among the states with the highest percentage of non-current and seriously delinquent loans, which Terry Story attributes to the brutal hurricane season. With homes badly damaged, people are focused on repairs and likely missing mortgage payments at a higher rate than states that weren’t so badly hit.
Non-current loans, Steve clarifies, are loans where the most recent mortgage hasn’t been paid, and seriously delinquent loans are those that haven’t been paid for an extended period of time, with non-payment probably not hurricane-related.
Real Estate Survival Guide For First-Time Home Buyers
In her Real Estate Survival Guide, Terry urges first-time home buyers to not shy away from the housing market. She says people shy away from purchasing a home due to psychological reasons such as the unfounded fear of exposing their credit history. Those fears are unfounded because preapproval for a home loan does not need a credit check, and simply applying for a home loan will not ding your credit score. So, if you’re in the market for a home, go forth without worrying about damaging your credit.
Terry says first-time home buyers also worry that their parents will judge their home choice and will look at these starter homes as not good enough for their sons or daughters. The issue, says Terry, stems from parents not being involved in the whole process, not knowing what the market is like, or not having seen the previous homes that the couple rejected. Parents can be valuable advisors in home purchasing decisions based on their own homeownership experiences, so there is value to getting their input, but Terry suggests getting them involved early in the game so they understand where you’re coming from
If you’re in the market for a first-time home, overcome your fears, get your advisors involved from the get-go, and pick a real estate agent that you are comfortable with. A good agent will advise you against buying homes that are not up to the mark, on quality, price, or other dimensions, and can be your greatest ally in ensuring a smooth first-time home buying experience.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: It’s time for Real Estate Roundup. This is the time every single week we get together with noted real estate agent, Terry Story. She’s a 29-year veteran with Keller Williams located in Boca Raton, Florida. Welcome back to the show, Terry.
Terry Story: Thanks for having me, Steve.
Steve Pomeranz: Well, housing prices have gone up. People are paying their mortgages every month, so their amount of outstanding balance is declining, and therefore-
Terry Story: Yeah, that’s good.
Steve Pomeranz: … That means that the amount of tapable equity, the amount between what you owe and what the house is worth, has grown to record levels, right?
Terry Story: That’s right. As of September, 42 million homeowners with a mortgage had nearly 5.4 trillion, with a T, in equity available to borrow against. That’s a lot of equity that’s available that you can use to make home improvements. Hopefully, we don’t see the car buying and the boat buying kind of activity, but we are building the equity in homes which is very, very healthy. That’s what we want to see.
Steve Pomeranz: Right. Remember, folks, if you’re going to pull money out of your home, and you use it, let’s say, for home improvements, while you probably won’t get all that money back, you will get some of that money back. If you’re going to try to invest it or try to spend it, try not to spend it on things that depreciate in value, like Terry was saying, like cars and boats, because you’re just wasting your money in that regard. The money that’s in your home is really not meant for that purpose. You really want to build up your equity. And really for a lot of people who can’t save otherwise, their home equity is going to represent a significant part of their retirement savings. So please keep that in mind.
Terry Story: That’s right. That’s right. Now under the recent laws that were passed, Steve, interest rate on these HELOCs are no longer deductible. That’s kind of a bummer.
Steve Pomeranz: It’s a big deal.
Terry Story: Yeah. I have a lot of investors that use their equity against their home to purchase investment properties. I don’t know that I’ll discourage them. They’ll figure a way to make it work out, but it was nice being able to deduct that.
Steve Pomeranz: Yeah, these shocks come once in a while. I remember in 1986 when I was … I started in a business as a stockbroker in 1981, and back then, these limited partnerships were all the rage and I was young and dumb, and they also promised huge tax deductions. I went in there. I made a five-year commitment for an ungodly sum each year to get this huge tax deduction. In 1986, they changed the law and they did away completely with the tax deduction. And when I looked at what I had left, I had really nothing good left. It was never a good idea to make investment decisions based on taxes anyway-
Terry Story: That’s right.
Steve Pomeranz: … But I didn’t know better. But now HELOCs, the money you borrowed, you’re not going to be able to deduct it, and that’s a big deal. It’s important that everybody knows that.
Terry Story: Yep.
Steve Pomeranz: Now I see also that Florida, as always, has another distinction in the housing market. Tell us about that.
Terry Story: Florida, yes, is once again among one of the highest percentage of noncurrent loans and seriously delinquent loans. It was interesting because I had somebody ask me that question the other day, and said, hey, have you see any foreclosures or short sales or anything? And I answered right away no, but I realized that I actually saw a short sale the other day. And I haven’t really seen one in a very, very long time. But it’s no surprise that Florida took this position because we did get hit with the hurricane. That definitely made an impact as to why we’re seeing this.
Steve Pomeranz: Okay. So people struggling to get their homes fixed, maybe they’re skipping a mortgage payment or so.
Terry Story: That’s right.
Steve Pomeranz: Okay. Noncurrent loans mean that they haven’t paid up to the current amount due. They’re late, and then seriously delinquent, obviously, is self-explanatory. That means that people haven’t paid for a really long time.
Terry Story: They’re later.
Steve Pomeranz: Probably not hurricane-related. That’s probably a different story.
Terry Story: Right. Correct.
Steve Pomeranz: All right, let’s go to your Real Estate Survival Guide. It’s always my favorite thing. And there’s a whole lot of information here about why first timers, first-time home buyers should not shy away from the housing market. And you’ve listed some interesting psychological aspects, as well. Let’s get right to them.
Terry Story: Sure. Well, there are a lot of psychological reasons not to fear purchasing a home as a first-time home buyer. One of them, believe or not, is fear of exposing their credit history. I have several people say, “Well, I don’t want anyone to run my credit because it’s going to ding my credit.” Well, that’s really not true. When you’re getting preapproved for finance, you do need to have your credit run, so we know what you’re looking at. Because the interest rate varies dependent on that credit score. You’re not going to really ding it if you’re applying for a loan.
Steve Pomeranz: Yeah. Don’t be afraid of that. Just go forth. Get your dose of reality, whatever it may be, so you can make a good decision afterwards. But don’t not do it because of fear of exposing your credit history.
Terry Story: That’s right. And then the second one is worrying that the family will judge their home choice. Here’s the deal with parents. When you’re dealing with first-time home buyers, I cannot tell you how many times the parents step in and kill the deal. They kill the deal by coming to look at the 50th house that the couple have looked at that they want to make an offer on, and say, “Oh, that’s not good enough for my son or daughter.” But the parent has not been involved in the whole process. They have not seen the other 49 homes to really make that decision on their behalf. If you’re going to get a parent involved, please get them started early in the game so they understand where you’re coming from.
Steve Pomeranz: Well, with you out in the field and putting forth all that work, and let’s just use your example of 49 homes, and they finally found … you know, they have to maybe settle in certain ways because it’s just not available at their price range, I think the parents also come in and maybe they have some home experience, and they say, “Well, look at this. This is going to cost you money later on,” da-da-da-da-da, you want to bring them in really early. And I would think as a sales person, you really want to bring them in really early.
Terry Story: Yeah, absolutely, absolutely. And there’s no problem having family members involved, but you really want them involved throughout the whole process. And then fear of making a huge error. If you’re dealing with professional people, you’re not going to be making a huge error. They’re going to guide you through this whole process. It is a very slippy slope ride when you’re going through the buying process, but if you’re very well-educated and working with an experienced, trusted agent, you’ll be okay. You’re not going to make a huge error. They’re not going to let you make a huge error.
Steve Pomeranz: Make sure you’re with someone you’re comfortable with, who’s giving you all the facts as you go, and helping to advise you. That’s what you’re paying for when you have an agent, and that’s what an agent should be helping you with. Do not have that fear.
Well, Terry, we are out of time, so I want to thank you for joining us. Terry is a 29-year veteran with Keller Williams located in Boca Raton, Florida, and she can be found at terrystory.com. Thanks, Terry.
Terry Story: Thanks for having me, Steve.