Wednesday, November 02, 2005

Mortgage rates, taxes and a slowed market

Here's a new listing from another office this week. Direct river, 2/2, 2nd floor condo with views across the wide part of the Banana River. The ocean is just across the street. Somewhat over-priced at an asking price of $370,000, furnished, but if the seller will get realistic this is an impressive unit in my favorite part of Cocoa Beach. Here's the view from the living room.

Freddie Mac reported this week that mortgage rates are at the highest point in 18 months with an eighth consecutive weekly increase. Will rising rates kill the real estate market? Maybe not. Consider the fact that new mortgage products introduced in recent years have multiplied the pool of qualified buyers by a factor of 2 or 3 according to lenders. With products such as no-doc and stated-income loans, buyers that couldn't otherwise find financing can now qualify for loans. Also consider that as rates move up, stretched buyers have alternatives to conventional 30 year fixed rate mortgages with products such as interest-only, 40 year, and other loans that offer lower payments. I not suggesting that buyers use these products, just that the impact of rising rates may be less this time than in previous periods of rising rates.

Property taxes. I am often asked by buyers what the property taxes are for a property. Unknown to many is the fact that the amount of tax the current owner is paying is not relevant to what a new owner will pay. Any change in ownership will trigger a new assessment based on current value. Many homesteaded properties have assessed values that are far below actual current value. In Florida homesteaded properties receive a $25,0000 reduction in the assessed value and, more importantly, the assessed value annual increase is capped to the lesser of 3% or the CPI. In the last ten years the CPI has been less than 3% eight times. What this means is that the $500,000 home you're considering may be on the tax roles for less than $100,000 with a current tax bill of less than $1000 annually. The purchaser of that property will probably be looking at a substantial increase in his taxes by the second year after purchase. To figure your possible tax liability on a new purchase you can go to the Brevard County Tax Appraiser's website and use the handy auto-calculator there or, for ballpark estimates, use my rule-of-thumb of 1.6% of the purchase price. This is for easy projections only. Your actual tax bill may be more or less but it's close most of the time.

Here are the stats for the last two weeks. As you can see, sales have slowed even more and inventory is climbing rapidly. If you're thinking of purchasing, you have much more negotiating strength now than you'll have after the holidays when our winter visitors arrive.

MLS Stats for Nov. 2, 2005

contracts last 14 days

condos over $500,000____ 3
condos under $500,000___ 6

homes over $500,000____ 2
homes under $500,000___ 1

active listings

condos all prices_______588
condos over $500,000__ 157

homes all prices_______ 65
homes over $500,000__ 41