New Tax Law Changes Are Less Dramatic Than Originally Proposed

2 Feb

When I wrote last quarter’s newsletter articles, the fate of the tax code changes was still up in the air.  One of the most dramatic anticipated changes would have made the time period that the owner of a principal residence needed to own and occupy the property to take advantage of the full capital gains exemption of $250,000 for single filers and $500,000 for married couples 5 out of the past 8 years instead of the current 2 out of 5 years.  Fortunately, that provision was removed in the final bill, despite being in the original bills passed by both the House and Senate.  The fact that provision was left unchanged should be greeted with a big sigh of relief by homeowners.

Other changes in the tax code going forward are notable though.  Any new mortgages taken out beginning 12/14/2017 will only have interest be deductible up to a loan amount of $750,000 instead of the previous $1,000,000 limit.  The House bill originally intended to reduce that amount to $500,000, so fortunately, that was also different in the final bill.  However, all mortgages taken out before 12/14/17 still qualify for the interest deduction up to $1,000,000 and if you refinance an existing mortgage taken out before that date, that mortgage would also qualify for the $1,000,000 limit, provided the refinanced mortgage doesn’t exceed the amount of the mortgage being refinanced.  Second homes also still qualify for the mortgage interest deduction, but with the total limited to the amounts specified above, also a change from what was originally in the House bill, which would have eliminated this deduction completely.  Interest on Home Equity lines up to $100,000 may still be tax deductible, but only for the purchase or substantial improvement of a principal residence.

Property taxes for homeowner’s principal residences, along with State Income Taxes are only deductible to a total of $10,000 going forward.  Obviously, that change affects our area considerably more than much of the rest of the country with our higher real estate values and taxes.  However, some other changes in the tax code should mitigate those items somewhat.  Many taxpayers with reasonably high incomes who ended up with considerably higher State & Property Taxes than the $10,000 limit in California also were typically affected by the Alternative Minimum Tax in the past, which negated or reduced those deductions.  The new tax code also raises the threshold quite a bit for being affected by the AMT, so it will be an issue for far fewer taxpayers.  That change in the AMT, along with the lower overall tax rates, should end up being a good counterbalance for the loss of those deductions, but it will vary greatly depending on the individual situation of the taxpayer.


DISCLAIMER—I am not a CPA or tax professional.  For advice relating to your personal tax situation, you should consult a CPA or tax advisor before making any decisions or taking any action.



Plumbing Leaks Under Slab Foundations Can Be Tricky & Expensive to Repair

2 Feb

Many local homes were originally built on concrete slab foundations.  While slab foundations can have some advantages over homes with raised foundations which include crawl spaces, one big disadvantage to slab foundations is that correcting any broken plumbing lines under the slab can be a major ordeal.  We’ve dealt with a number of broken lines in properties we manage over the years and we’ve learned a few good lessons in the process.  The first is to have a definitive leak detection done to determine the exact location of the leak.  This is crucial in making all other repair decisions.  A good leak detector should not only be able to pinpoint the leak location, but also mark the manifolds located within the walls that supply the broken line.  Once we have that information, we always look for a way to try to re-route a new pipe around the broken one rather than trying to drill through the slab and repair the existing pipe.  Depending on the leak location, drilling through the slab to make a repair can be messy and expensive, especially if the leak lies under built in cabinetry or expensive flooring that would need to be pulled up and possibly replaced.  We are fortunate to work with a few plumbers who excel in re-routing new pipes from the manifold or intake pipes in the home back to the location that the broken pipe supplied, either through walls and attic space inside the property or around the exterior walls of the property.  In some cases, drilling through the slab to make a repair is still the best option, but before doing so, you might want to consider getting a second opinion first to see if there are alternatives.


What’s Happening in Today’s Market?

2 Feb

The beginning of 2018 has been a continuation of what we saw at the end of 2017, strong buyer demand and a low number of available homes for sale.  As you can see on the chart to the right, in most areas, there isn’t even a full month’s supply of homes on the market currently.  Of the 299 home sales that closed in January throughout the 680/24 corridor, about 57% of those homes sold above their asking price, with the average price about $4000 over the average original list price.  The economic news throughout the area continues to be strong, so despite the tax code changes that will prevent many new homebuyers in the area from deducting all of their interest expense and property taxes to lower their tax bill, I think we can expect demand to stay reasonably strong for the foreseeable future.  Interest rates have risen recently as well, as they can be expected to do in a stronger economy.  Many home sellers tend to wait for the Spring to put their homes on the market, despite the fact that there is solid demand in our area typically from the beginning of each year after potential home buyers emerge from their Holiday commitments.  We can likely expect to see more inventory available as we get into March & April.

Why Don’t the Fed’s Rate Increases Push Up Mortgage Rates?

2 Feb

It is interesting that 30 year fixed rates have not risen dramatically in the last year even though the Fed has ostensibly increased rates four times.

Why don’t the Fed’s rate increases push up mortgage rates directly?

1.) Short Term Rates Don’t Always Affect Long Term Rates: The Fed is only increasing the Fed Funds Rate, or the rate banks charge each other for overnight loans. This is a very short term rate, and short term rates don’t always affect long term (mortgage) rates. Borrowers with short term or variable rates (credit cards, car loans, equity lines, etc.) are usually adversely impacted by Fed rate hikes.

2.) Many Factors Influence Rates Besides the Fed:

A. The Fed: The Fed has several tools at its disposal, including the Fed Funds Rate
and Open Market Operations (buying and selling bonds), but it often has little
control over rates overall.

B. Inflation: Inflation reports can move rates significantly. Rates improved
recently in fact b/c the Fed cited tame inflation reports in its announcement.
If inflation looms, investors demand higher rates to offset its effects.

C. Geo-political Strife: Wars, skirmishes, and major financial crises all send
investors to “quality” (out of stocks and into bonds), often pushing rates down

D. Economic News: Good economic news usually moves rates up, while bad news
moves rates down.  This is b/c good news usually pushes investors out of
bonds and into stocks (reduced demand for bonds increases rates), and b/c
good news increases the likelihood of more rate increases by the Fed.

E. Demand for Credit or Bank Loans: This has not been an issue in recent years,
but if businesses and individuals increase their demand for bank loans overall,
rates usually increase. This could happen for example if the economy heats up
as a result of an effective tax reform, according to some commentators.

There are many other factors that move rates as well, but the main point is that the Fed is hardly the only factor influencing interest rates.

The above was provided by Jay Voorhees at JVM Lending in Walnut Creek.
See their website at Reach them at 925-855-4491 or

What’s Happening in Today’s Market?

14 Nov


Prices have continued to rise with good demand for properties, although we’re not seeing the depth of interest or multiple offers as we did earlier in the year.  The median time on the market for available homes in Walnut Creek has increased to 33 days, up from just 10 days earlier this year.  Many properties are still selling rather quickly, although the number of properties with price reductions and those coming back on the market after a sale falling through have increased in the past couple of months.  I expect those trends to continue as we get deeper into the Fall months.  Interest rates are still near historic lows and rents have continued to rise, which is helping to drive some current tenants into the purchase market.  While lender guidelines have continued to loosen up overall, many more home buyers are struggling to qualify with the price increases we’ve seen over the past few years.  As such, we’re starting to see lenders offer mortgages with lower down payments.  Hopefully, we’re not headed for a repeat of where that led previously, with buyers getting in too far over their heads.   The rental market has begun to slow a bit as rents appear to be flattening out as well for the time being.

3rd Quarter 2016 Median Asking Price vs Sale Price


Zillow “Zestimates™” Can Be Far Off Actual Value in Many Cases

14 Nov

zillow-5-star-agentAs has increased it’s presence in online real estate, so has the perception that the “Zestimates™” or home price estimates they present on properties are reasonably accurate.  In many cases, they aren’t even close.

More and more, I hear home sellers or potential buyers reference the Zestimate™  shown on Zillow’s web site as if it should be a reliable guide to the actual value of properties.  Zillow lists some statistics on their website that should serve as a warning.  According to their Zestimate™ Accuracy Table updated on May 31, 2016, in the San Francisco area, their Zestimates™ were only within 10% of the actual sales price 60.6% of the time.  Being within 10% of the sales should not be a difficult feat.  On a $700,000 property, 10% off is a range of $630,000—$770,000, not exactly a useful guide when looking to buy or sell a home.  Almost 40% of the time, the Zestimate™ wasn’t even within 10% of the actual sales price.

The amount that the Zestimate™ can differ from true market value is not consistent either, and it can be considerably higher or lower than the true market value.  A couple of recent sales of mine illustrate this point quite clearly.  A home I recently listed and sold in Clayton had a Zestimate™ of $880K when we put it on the market.  The market value based on the recent sales was clearly not that high, and we listed the property at $750K.  It sold after a couple of weeks at $740K.  Even after the sale, the Zestimate™ still stated it’s value at $852K.  In contrast to that, I recently listed and sold a townhouse in Walnut Creek where the Zestimate™  at the time we listed it was $580K.  We listed the property at $668K and sold it just under the asking price.  Despite our sale and that of two similar properties in the same complex that were just slightly less, the Zestimate™  after the sale had increased only to $612K a month after the sale.

Another telling instance of the questionable accuracy of Zestimates™ can be seen by looking at townhouse complexes where many of the homes have similar locations and floor plans.  At one complex in Walnut Creek I do a lot of work in, the Zesimate™ for the same model in different parts of the complex ranges all the way from $489 to $570K.  There’s no apparent rhyme or reason for the difference.

In one humorous instance illustrating the inaccuracy of Zestimates™ , Zillow CEO Spencer Rascoff recently sold his home at 3808 E Madison St. in Seattle for $1,050,000.  At the time of the sale, the Zestimate™ shown for his home on the Zillow website was $1,750,000.  Even after the sale, the Zestimate™ still showed a value of $1,556,417.

While the “Zestimates™” that Zillow provides can prepare potential buyers moving to an area with a good sense of property prices in a general area, they can also do more harm than good if a home seller or potential buyer cling to them as being an accurate reflection on the value of a particular property.



Have you ever considered flood insurance?

3 Nov


Flooded HouseWith the expected onslaught of rain predicted for this year with El Nino on the way, many insurance agents are touting the benefits of flood insurance. A typical homeowner’s insurance policy generally doesn’t cover flood damage. Houses that are in designated flood zones which have a mortgage on them have been required to have flood insurance by the lender, but most homes outside of those designated areas are not required to, and therefore are usually not covered.   Floods can be caused by any number of factors including overflowing drainage basins, canals or other flood control measures. According to the National Flood insurance Program, the average flood claim amounts to $39,000. Flood insurance for homes in moderate to lower risk areas should be around $400 a year or so. Flood insurance can be purchased through your insurance agent, so if you have a concern, it would be beneficial to discuss with your agent.


Increased Demand for Rentals Continues to Drive Up Rents

3 Nov

Rents across the area have contFor Rent Signinued to increase dramatically over the past few years. We have had an influx of new people looking to rent in the area due to the strong job market as well as people getting pushed out of higher priced areas like San Francisco or the Peninsula. There has been high demand in our area for rentals in all price ranges. Privately owned 2 bedroom condos and townhouses in Walnut Creek have been averaging between $2200—$2700, but could be considerably higher if they’re newer or have nicer amenities. Apartment complex rents may be higher as well, as they can typically offer more flexible lease terms and lower security deposits to tenants than private owners. We are starting to see a slacking off in demand in the market though, as properties are staying on the market longer and we are starting to see some price reductions in the market. I would not expect to see rent amounts drop much in the near future however, absent a big change in the economy.


What’s Happening in Today’s Market?

3 Nov

graphThe real estate market continues to be a moderately strong seller’s market, although we’re not seeing the depth of demand and price increases that we saw earlier in the year. That’s fairly typical for the time of year as we head deeper into the Fall. While some properties are still getting multiple offers, many are staying on the market for a short time before selling. The number of sales is up in most areas this year, as the number of people willing to sell has increased inventory somewhat. It’s been 4 years since the market bottomed out in 2011. You can see in the chart to the right how different areas have rebounded since. Concord and Martinez saw the steepest drops in values during the recession, but have also seen the strongest rebound. Interest rates continue to hover right around 4%, historically very low and are making homeownership look increasingly attractive to those trying to rent in the crazed rental market. Investors, who had largely abandoned the market as prices rose over the past couple of years, have trickled back in due to the overwhelming tenant demand and increasing rents. There does seem to be a lingering concern among potential buyers that prices have escalated a bit too quickly. Even in cases where there is substantial demand for a particular property, the offers today tend not to be dramatically over asking price in most situations. I expect we’ll see that trend continue and we get into the Holiday season. Graph2