What Does a Better Job Market Mean?
Last month we printed a quote from a Federal Reserve Study. This study indicated that the economy was poised to start producing more jobs. While many were skeptical regarding this prediction, the October and November jobs reports indicate that this speculation was right on point. The economy has produced just over 200,000 jobs per month during the past four months while the previous four month average hovered around 160,000 per month. Not only has the jobless rate dropped to 7.0%, but initial claims for unemployment benefits have moved below 300,000 for the first time since the recession started. Though in the past week, they bounced back significantly most likely due to the timing of the Thanksgiving Holiday.
There are some evidence that the pick-up is still lackluster when you consider how many have left the workforce and the quality of jobs created; however, there is no doubt when you put all the numbers together, the job creation machine is steadily improving. The next question is--what does that mean for the economy? The economy improves as the job market improves. It is that simple. People who are working spend more money. More importantly, they make long term decisions such as setting up households, purchasing cars, homes, furniture and undertaking home improvements. For example, it is no coincidence that car sales in November hit their highest level since 2007.
A better economy comes with costs. This week the Federal Reserve meets and considers whether to lessen their stimulus efforts. Already interest rates have been increasing for the past six months in anticipation of this move. Most speculate that the Fed will not move until early next year and if jobs creation continues to improve, this prediction may become a certainty. News that Congressional budget negotiators have reached a preliminary agreement has heightened concerns that the move may come sooner because of a reduction of the threat of another government shutdown. Keep in mind that the Fed does not control long-term rates and if the markets feel the Fed should let rates rise, they are likely to rise no matter what action the Fed takes. The bottom line? The good news we are seeing in the employment sector is likely to end the run of good news we have seen with regard to record low rates. That does not mean that rates are likely to be high enough to make owning homes and cars unaffordable. There are still a lot of bargains out there. We just don't know how long they will last.
A tax break for struggling homeowners ends Jan. 1 and that could mean big tax bills -- and financial hits for their neighbors. Say a family is behind on their mortgage and the bank cuts them a deal, maybe reducing the loan principal or forgiving their home loan balance after a "short sale" in which the seller owes more than the final price. Under traditional IRS rules, the amount of that debt forgiveness would be taxable income. That temporarily changed in 2007 when Congress passed the Mortgage Foreclosure Debt Forgiveness Act. That law is set to expire at year's end. A return of the tax could affect many of the nearly 10 million Americans who owe more on their loans than their homes are worth, according to the National Association of Realtors (NAR). In a short sale, if a property with a $400,000 home loan sells for $250,000, the forgiven debt of $150,000 will be taxed after Jan. 1. The hit could top $35,000. Consumer advocates consider the tax unfair: "The money being taxed was 'phantom income' that existed only on paper," said Elyse Cherry, CEO of Boston Community Capital, a non-profit, neighborhood stabilization group. It will also damage foreclosure-prevention efforts, said Cherry. Many at-risk homeowners could not participate in programs if a big tax bill accompanies the fix. "The program only works when we can save homeowners money," she said. Source: CNN/Money
Homeowners frequently see their heating bills rise as Fall begins and the weather cools. For this reason, homes with energy efficient and environmentally friendly features are often a priority to prospective buyers. According to the National Association of Realtors’ 2012 Profile of Home Buyers and Sellers, nearly nine out of 10 recent homebuyers said that heating and cooling costs were somewhat or very important when considering a home for purchase. “Realtors build communities and know that consumer demand for greener homes and features has grown considerably over the past several years. Going green has proven to be more than a trend; many people now seek out this way of living and want homes and communities that are more resource efficient and sensitive to the environment,” said NAR President Gary Thomas, broker-owner of Evergreen Realty in Villa Park, Calif. “As energy savings and green building features are becoming more important to buyers, sellers and businesses, it comes as no surprise that consumers are placing a higher value on properties with those features.” It’s easy to understand why home buyers tend to favor greener houses; often the higher a home’s energy efficiency, the more money is potentially saved in monthly heating and cooling costs. NAR data show that features which directly affect monthly energy costs are important to buyers; thirty-nine percent of survey respondents reported that a home’s heating and cooling costs were very important when considering a home for purchase, followed by energy-efficient appliances and lighting, each at 24 percent. Landscaping for energy conservation and environmentally friendly community features were less important but were still a factor in the minds of home buyers; nearly half of buyers found these features very or somewhat important. Source: NAR
Thousands of single-family homes are being built to rent rather than sell, reports the New York Times. More home builders and investors see it as an income-generating investment at a time when the pool of first-time home buyers is shrinking. The percentage of homes built specifically as rentals was 6.2 percent in 2012 — a record high, according to Census Bureau figures. For example, in the Atlanta area, a five-bedroom, three-bathroom new home that may have sold for less than $200,000 can fetch $1,300 a month in rent. “New homes still command a premium with renters,” the Times reports. For investors, a new home can offer “fewer repairs, lower maintenance, and it looks great to the tenants,” says Bruce McNeilage, the managing partner of Kinloch Partners, a Nashville-based real estate investment company that has been acquiring model homes in the Atlanta area to turn into rentals. “You can get maximum rents, and people are going to stay in them for a while because they’re brand-new.” However, some home owners say they’re concerned about investors turning their new subdivisions into neighborhoods of renters. They fear it will worsen property values. Some firms say they try to avoid buying up blocks of rentals in one subdivision. “We never do more than 20 or 25 percent of a subdivision — we like to spread it out as much as possible,” says James Breitenstein, CEO of San Francisco-based firm Landsmith, which has built about 1,000 homes for rent in Houston, Indianapolis, and Kansas City. “We don’t want them to become rental communities.” Source: New York Times
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