The biggest change in the real estate market this year has been the dramatic decline in the interest rate on mortgage. After enjoying several years of very low rates, the strong economy, rising federal rates and inflation caused rates to rise substantially last year, with the average 30-year fixed rate mortgage in August 2018 reaching 4.5% and climbing to a peak of nearly 5% in November, 2018. Since then, the average has fallen 134 basis points to about 3.6%. This means that the monthly cost of a $250,000 mortgage has decreased from $1,332 to $1,136, a savings of $196 per month.
Lower rates also mean improved housing affordability. In May of 2018, national housing buying power was at $361,184. One year later, the index increased to $391,913, or over $30,000 more in affordability. In Florida the year-over data went from $314,574 to $341,844, or over $27,000 more in home affordability. Nationally, this is due to a combination of falling interest rates and a decline in the real house prices of almost 4%, but in the same time period Florida home prices has actually increased nearly 9%.
For many homebuyers, a thirty-year fixed rate mortgage is not the best choice. Only about 1/3 of homeowners stay in the same home for more than ten years. That means a majority of buyer/borrowers stay less than ten years. Therefore, an adjustable rate mortgage (an ARM) with a fixed term (5-, 7- and 10-year products are available) before adjusting may be a better alternative. Currently a 10-year ARM can be obtained at about 3.1%. This is a half-point savings, which, on a $250,000 mortgage costs $1,067 per month, a savings of $69 per month. Over ten years that equals $8,280 in lower payments, and another $3,500 in less interest, for a total savings of $11,780.
For sellers looking to sell their own homes (FSBOs or “for sale by owners”), there is a new alternative to craigslist. Facebook Marketplace is a free online site where an owner can list a home for sale or rent. Unlike craigslist, which gives total anonymity, Facebook shows you who the sellers are so that there is (hopefully) a lower risk of a scam.
If you are considering selling on your own, you can still place your home in the local multiple listing service (MLS) at very low cost. Companies like flatfee.com charge $95.00 to list your home (with packages to include more photos at higher prices). This gets you six months in the MLS and a listing on realtor.com. If you want to attract buyers working with a local real estate agent, you will still need to offer a cooperating broker commission to incentivize these agents to show their customers your home. This means paying 2-3% of the sales price to the buyer’s agent.
August is the time for the Notice of Proposed Property Taxes, otherwise known as the “Truth in Millage” (TRIM) Notices from the Palm Beach County Property Appraiser. These should be examined carefully and if there are valuation or exemption issues, a Petition to the Value Adjustment Board should be filed. These are due the 25th day following the mailing of the TRIM notice, but such time period may be extended if the petitioner can establish a good faith basis for a late filing.
Many petitions are resolved pre-hearing by the Appraiser’s office, but if not, a quasi-judicial hearing is held by in front of an attorney (for exemption issues) or an appraiser (for value issues) appointed by the County. Because the issues can be complex, and considering the cost of losing an otherwise valid claim, I recommend that an owner hire an exemption or valuation expert to review the case and, if warranted after review, to represent an owner at the hearing.
With values continuing to rise despite the 3% homestead cap and the 10% non-homestead cap, tax revenues continue to rise, allowing the County to maintain the same tax rate. However, voters last November approved a new property tax to help fund public schools. An additional $1.00 for each $1,000 in property value will be assessed for the next four years with the goal to raise 800 million dollars for schools. With a median tax value of $261,900, a homeowner with a homestead exemption of $50,000 will pay an additional $211 in property taxes to cover this new tax.