Home Improvements - Consumers Spending Less

The median price of new and existing homes dropped 10%, to $225,000, in the fourth quarter of 2006 over the same period a year before, according to the National Association of Home Builders.  The value of remodeling has been shrinking, too: A homeowner who finished a basement — a $57,000 job on average nationally — got back 79% at resale in 2006.  In 2005 the same job returned 90%, according to the 19th-annual Hanley-Wood's Cost Versus Value survey, published last fall.

Remodeling a bathroom with upscale products like stone countertops and a bidet cost $38,000 and returned 77% in 2006, down from 93% in 2005.

The diminishing returns have dampened spending on remodeling, which grew by 1.5%, to $168.7 billion, in the fourth quarter of 2006 over 2005, according to a report released in January by Harvard's Joint Center for Housing Studies.  In 2004 and 2005, quarterly increases were as high as 20%.

Many homeowners are choosing to "postpone or pass on major home improvements," says Nicholas Retsinas, the director of the center, and that is likely to continue until the housing market picks up.

What about you?  Thinking of a home improvement or remodeling project?  Wonder if you'll re-coup the investment?  Post your thoughts or comments here.

Deducting PMI When You File Your Taxes

Private mortgage insurance (PMI) can be a very expensive cost associated with paying your mortgage.  And though you could deduct mortgage interest from your taxes, until Congress approved the Tax Relief and Health Care Act of 2006, you could not deduct PMI.

When you don't have enough money for a full 20 percent down payment and need to finance more than 80 percent of the value of the home, lenders are required to charge PMI.  It is a fee they charge to protect themselves in case the borrower defaults–in case the borrower fails to pay back the loan.

Homeowners whose household income is $110,000 or less will probably be the ones to benefit the most from this Act since they will be able to deduct the full mortgage insurance premium from their taxes.  The deduction gets reduced by 10 percent for every $1,000 over the $110,000 amount.

Most homeowners and home buyers who want to avoid paying mortgage insurance had to get a piggyback, or second mortgage, to cover the amount they couldn't finance with their first mortgage.  Since everyone's individual situation is different, this is still a viable option for some.  However, some second mortgages come with adjustable rates, hence payments that could increase when the rate adjusts.

Now, it's possible to get a first mortgage for more than 80 percent of the home value without having to get a second mortgage.  And while you'll still have to pay PMI, you may be eligible to deduct it, along with your mortgage insurance if you closed on a home purchase or mortgage loan refinance after January 1, 2007 when you file your 2007 tax returns.  However, the bill signed by Congress may expire on December 31, 2007, unless Congress opts to renew it.

To find out whether you are eligible to deduct private mortgage insurance from your taxes, you should always consult your tax advisor.

If there is any area of the home buying process that you have a question about and would like for us to post a tip about it here, leave us a comment or question below and we'll cover that for you in a future post.

Real Estate and Retirement

Before you start counting your real estate profits from selling your home and downsizing, think about how much you'll pay for the house you'll live in next.  Unless you're willing to move far away, the cost of your empty-nest dream cottage has probably also shot up too.

Consider the recent explosion in prices an anomaly.

Many boomers face another challenge.  You won't be able to tap all your home's equity if you've already borrowed heavily against it.

As with stocks, demographics could also dampen home prices as boomers first downsize and then, move on.  Some economists think real estate is even more vulnerable to those trends.

Though this may lower returns, it doesn't necessarily portend a crash.  Housing economist Karl Case of Wellesley College notes that boomers span a wide age range. "I'm 60, and if I'm going to be in my house another 20 years, the baby boom still stretches out another 20 years behind me," says Case. "The pattern isn't as cliffy as you might expect."

Even if the value of your house slides, Case adds, you have built-in insurance: The cost of the house you're buying will have gone down too.

Give us your thoughts and opinions about real estate and retirement below….

 Modular Homes: What Are They and Do You Want One?

Understanding the differences between housing options when you are searching for a home to purchase is very important. In your search for your dream home, you will encounter housing terms such as stick built, modular, and manufactured (mobile home). Each type of dwelling has their benefits and drawbacks, both temporary and long term. Primarily though, confusion exists about modular home manufacturing.  Also, many are unaware of the benefits of owning one.

The overall production of modular homes is a unique process. However, design begins (as with most floor plans) with an architectural engineer using a CAD (Computer Aided Design) program, and is approved by structural engineers for durability and safety. There are benefits to having your home constructed in the fashion of a modular home. The construction of the modular home sections begins on an enclosed factory floor. Quality control is strictly adhered too for each section of the house. Your home during the building phase is never subjected to inclement weather conditions, and usually the home can be ordered and delivered on site with in two weeks. Also, during this phase your contractor can set a pre - made foundation, and ensure that all necessary permits and grading work is completed in time for your modular home delivery. Finishing work such as crown molding, carpeting and appliance installation is completed once the home is joined and all utilities are hooked up. During this phase you can begin to pack and schedule your date for move in. Note worthy too is the fact that many modular homes can be special ordered from any standard house design on the market.

In a comparison between modular and manufactured homes the differences are quite clear. When comparing them, the potential home owner must think in terms of the long run. It's true manufactured housing does have short term benefits, but over the long haul it might be wise to invest a little more money into a modular home.

• Modular homes appreciate in value, manufactured homes depreciate.
• Modular homes are set on a permanent home foundation, manufactured homes set on a block pier making financing harder if not impossible to obtain.
• Modular homes meet state and local building requirements and are inspected, manufactured homes do not, and structural reliability can be faulty.
• Modular homes meet federal, state and local regulations, while manufactured housing must meet only HUD (Housing and Urban Development) requirements.
• Modular homes are accepted into most communities of stick built homes, but restrictive covenants exist on where a manufactured house may be placed.
• Modular homes are, in comparison, just as energy saving in heating and cooling as any stick built home.

Give us your thoughts or opinions about modular homes. We'd love to hear from you.

Prediction: More Pain for Homeowners

A glut of vacant homes suggests that the U.S. housing market has not yet stabilized and may be poised for another downturn. "Now that oil prices and mortgage rates have stopped falling, we will be back lamenting the downturn in the housing market and its spreading effects on the economy in the second quarter, much as we were in the summer and fall 2006," Merrill Lynch economist David Rosenberg wrote. "Looking at the inventory backlog and still-stretched affordability levels, this story is far from over."

The Federal Reserve's policy-setting Federal Open Market Committee cited "tentative signs of stabilization" in the housing market when it voted unanimously to keep interest rates on hold recently.

Pending home sales jumped a stronger-than-expected 4.9 percent in December, the biggest gain since March 2004, supporting ideas that the worst was over and the housing slowdown would not tank the broader economy.  

Get the full story here…

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