Home Ownership


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Owning a home tops the dream list for most Americans, and for plenty of good reasons. It’s a shelter for your family, a gathering place for your friends and a good long-term investment.

Tax breaks are also frequently cited as motivation for moving from renting to owning, and there are many ways a home can cut your tax bill.

But, as is often the case with the U.S. tax code, homeownership tax benefits are not always clear-cut. That frequently leads to some bad information floating around.

While myths, half-truths and misconceptions may abound, Bankrate.com has narrowed it down to five that, if you buy into them, could cost you.

1. My mortgage interest will reduce my tax bill.
This is true for the majority of homeowners, but not for all. And this tax break won’t work forever.

To take tax advantage of your home loan’s interest, you must itemize and come up with a total that exceeds your standard amount. On 2007 tax returns, the standard deductions are $5,350 for single taxpayers, $7,850 for head of household filers and $10,700 for married couples who file jointly. These amounts increase a bit each year to account for inflation.

“Given home prices these days, most owners are itemizing,” says Mark Luscombe, principal tax analyst with CCH of Riverwoods, Ill. By the time they count mortgage interest, property taxes and other nonhome deductions, such as state taxes and charitable gifts, their itemized totals easily surpass their allowable standard deductions.

But most is not all.

Taxpayers who buy a home late in the year, for instance, might find the standard deduction is more beneficial, at least initially, says Kathy Tollaksen, a CPA at Sikich in Aurora, Ill. In these cases, where you make only a few payments in a tax year, depending on your loan you might not pay much interest, at least not enough to exceed standard amounts.

Timing also could reduce or eliminate other home-related tax breaks.

“Quite a few states have real-estate taxes that are calculated in arrears. That is, they have already been paid or mostly paid (by the seller) by the time you buy,” says Tollaksen. “In the first year, you’re seeing taxes that are someone else’s responsibility so you’re not getting the full tax value of your real-estate taxes.”

The benefit of mortgage interest also could be a myth if you’ve lived in your home for a long time. In this case, you likely are paying more toward your loan’s principal instead of interest. So homeowners at the end of a loan term don’t get much, if any, from this tax break.

Or, as Bob D. Scharin, senior tax analyst and editor of Warren, Gorham & Lamont/RIA’s monthly tax journal “Practical Tax Strategies,” puts it, “Every deductible expense you incur may not produce a deduction.”

2. All costs related to my home are deductible.
There are no two ways about this one. It’s flat-out false.

“Some buyers think, hope, they can write off everything connected with the house,” says Tollaksen. “Not so. Association fees and property-insurance costs are not deductible.”

Neither, in most cases, is private mortgage insurance, which your lender probably required if your down payment was less than 20%. However, a new law changes the deductibility of PMI for mortgages originated or refinanced between Jan. 1, 2007, and Dec. 31, 2009.

If you got your mortgage and policy in that time frame, you might be able to deduct your insurance-premium payments. The law also extends beyond private insurance to others, including FHA, VA and rural housing.

There are some limits, though. The PMI deduction is phased out for taxpayers with adjusted gross incomes exceeding $100,000 and is totally eliminated once adjusted gross income reaches $110,000.

Don’t try to deduct basic maintenance, repair or home-improvement costs either.

Tollaksen says, “I’ve had people say, ‘I put a new roof on my home; can I deduct that?’ No.”

If you try to write off these expenses, expect to hear from the Internal Revenue Service and to pay a higher tax bill (and possible penalties and interest) after you refigure your taxes without the disallowed deductions.

However, you still need to keep track of these expenses.

“If you convert the home to rental property or sell it,” she says, “these costs will affect the property’s tax basis.”

A home’s basis is critical when it comes time to sell. And selling is also a tax area in which many people fall for myth No. 3.

3. I must use money from my home sale to buy another residence.
This used to be the only way to get around a tax bill on a home sale. Even then, you were only able to defer taxes by purchasing a new residence of equal or greater value with the profits from your other house. When you sold your final house, you’d owe those long-deferred taxes you had rolled over throughout the years. Home sellers age 55 or older were allowed a once-in-a-lifetime tax exemption of up to $125,000 in sale profit.

But on May 7, 1997, home-sale tax law changed. Still, a decade later, many homeowners are confused about the tax implications of selling.

“I recently heard some neighbors talking about having to buy another house when they sell to avoid the taxes,” says Scharin. “If the last time you sold the house was before 1997, you’re thinking of those old rules.”

Don’t worry. Most taxpayers still get a nice break. Now, if you live in the house for two of the five years before you sell, the IRS won’t collect tax on sale profit of up to $250,000 if you’re single or $500,000 if you and your spouse file a joint return.

“The law change has really affected people’s behavior,” says Luscombe. “Before, it didn’t really matter much whether you sold frequently or held onto your home for a long term. You basically could roll over the gain into a larger home and people could avoid tax until they sold for the final time without putting it into a replacement home.

“Now the law rewards people who sell frequently. In this current market, people who sell every couple of years can get and keep their gain,” Luscombe says. “But people who buy and hold might find they have reached the point where the gain exceeds the exclusion.”

That means they face unexpectedly high tax bills, even at the lower 15% capital-gains rate. The profit could also push them into a higher overall tax bracket, meaning they would make too much to claim some deductions, credits or exemptions. They also might even end up owing alternative minimum tax.

Another problematic consequence, says Luscombe, is that when the new rules took effect, people basically quit keeping records related to their homes.

“They thought: Since we’re never going to be taxed on the sale, there’s no need to keep track of what we paid and what improvements we made,” he says. The improvements add to your home’s basis, which you subtract from the sale price to determine your profit and whether any of it is taxable.

“Now with inflation in the housing market, a lot of people are selling homes in excess of the gains without any way to show that their tax bill should be less,” says Luscombe.

4. Putting my child on my home’s title is a smart tax move.
Worries about taxes on a residence sometimes lead homeowners to fall for this myth. It’s a particularly tricky one, because it combines confusion about residential taxes with the even more complex estate-tax area.

“Sometimes we’ll hear about taxpayers who, in doing some quick back-of-the-envelope estate planning, decide to put their home in the children’s names,” says Tollaksen. “The thinking is: My son or daughter won’t have to worry about this when I die.”

The goals: Avoid probate, keep the home in the family and get the property out of the parent’s estate for those tax purposes. Such a move, however, could produce other tax problems for your children.

Unless the child moves into the newly deeded house with the parent and lives there long enough (two of the previous five years) to make the house the child’s main residence, too, says Tollaksen, the son or daughter won’t get the $250,000 or $500,000 residential tax break when the child later decides to sell. Without establishing primary residency in the house, either before or after the parent passes away, the child’s ownership is viewed as an investment property.

Other parents opt to simply add a child’s name along with theirs on the title to the house, known legally as a joint tenancy. It doesn’t mean that all the owners live in the home, but simply that two or more people hold title to the property.

This, too, can produce tax complications.

Generally, when someone inherits a property, its value is stepped up. That means when the owner dies, the property becomes worth its fair market value that day.

But if the child co-owns the property with his parent, the child doesn’t get to fully use stepped-up basis. Tax law considers the addition of the child’s name to the title as a gift. And, along with that half of the home, the child receives half the basis that his or her parent has in the property.

This is known as the property’s carry-over basis. And it could be costly.

Consider, for example, that you bought your house many years ago and your basis in the property is $50,000. You add your daughter to the title. When you die, she inherits your half of the home, which by then is worth $250,000. A buyer offers $300,000 for the home.

Pretty good deal, right? From a real-estate perspective, yes. But not when it comes to your daughter’s tax bill on the sale.

Rather than owing taxes on just $50,000 more than the house’s stepped-up market value, your daughter will owe on three times that amount. Here’s the math:

Parent owns home with a basis of: $50,000
Parent adds child to title, “giving” child carry-over basis of: $25,000
At parent’s death, house is worth $250,000, producing on the inherited half a stepped-up basis of: $125,000
Home subsequently sells for: $300,000
Child’s total adjusted basis (line 2 plus line 3) is: $150,000
Taxes due on sale profit (line 4 sale price less line 5 basis) of: $150,000

What had been done with the best parental intention turned out to carry a big price because of this homeownership tax myth.

5. If I take a capital loss when I sell my home, I can write it off.
This myth, like No. 2, was probably started by wishful homeowners. Sorry, it’s just as wrong.

It is true that real estate, like any other asset, has the potential to go down as well as up in value. But unlike most of those other holdings, you cannot write off any loss you suffer if you must sell your main residence for less than what you paid.

That’s because your residence, under tax law, is considered personal property.

“When you sell your home for a loss, it’s not like other capital items,” says Scharin. “You don’t get to deduct personal property that you sell for a loss.”

“It’s the same as any personal property that declines in value,” says Luscombe, “like that old TV you sold to the neighbor kid so he could take it to college. You sold it for much less than you paid, but you can’t take a loss.”

You do, however, have to pay tax on gains you make when selling personal property.

But at least you now know the difference between fact and fiction when it comes to your residential property, which will help you make appropriate real-estate and tax decisions in the future. Full Story

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When it comes to the environment, being a good global citizen starts at your doorstep. From recycling to using alternative cleaning materials, minor changes at home can add up to real benefits for the planet, not to mention your own health and happiness.

It may be a cliché, but the best way to be Earth-friendly is to cut down on what you consume and recycle whenever you can. The U.S. generates about 208 million tons of municipal solid waste a year, according to the National Institutes of Health. That’s more than 4 pounds per person per day. Every little bit helps; recycling just one glass bottle saves enough electricity to light a 100-watt bulb for four hours.

Here are 10 more easy ways from MSN.com to green your home:

1. Green up your appliances. Getting rid of that old refrigerator in the garage could save you as much as $150 a year, according to the Environmental Protection Agency. Appliance use comprises about 18% of a typical home’s total energy bill, with the fridge being one of the biggest energy hogs. If any of your appliances is more than 10 years old, the EPA suggests replacing them with energy-efficient models that bear their “Energy Star” logo. Energy Star-qualified appliances use 10%-50% less energy and water than standard models. According to the Energy Star site, if just one in 10 homes used energy-efficient appliances, it would be equivalent to planting 1.7 million new acres of trees.

Also, consider what you put in that energy-efficient refrigerator. Pesticides, transportation and packaging are all things to consider when stocking up. Buying local cuts down on the fossil fuels burned to get the food to you while organic foods are produced without potentially harmful pesticides and fertilizers.

2. Watch the temp. Almost half a home’s energy consumption is due to heating and cooling. 

  • Turn down the thermostat in cold weather and keep it higher in warm weather. Each degree below 68°F (20°C) during colder weather saves 3%-5% more heating energy, while keeping your thermostat at 78°F in warmer weather will save you energy and money. A programmable thermostat will make these temperature changes for you automatically.
  • Clean your furnace’s air filter monthly during heavy usage.
  • Consider a new furnace. Today’s furnaces are about 25% more efficient than they were in the 1980s. (And don’t forget to check out furnaces carrying the Energy Star label.)
  • To keep your cool in warmer weather, shade your east and west windows and delay heat-generating activities such as dishwashing until evening.
  • Use ceiling fans instead of air conditioners. Light clothing in summer is typically comfortable between 72°F and 78°F. But moving air feels cooler, so a slow-moving fan easily can extend the comfort range to 82°F, according to “Consumer Guide to Home Energy Savings” by Alex Wilson.

3. Save water. The Web site “Water — Use it Wisely,” created by a group of Arizona cities, lists 100 simple ways to save water. We’ll share just a few here:

  • Put an aerator on all household faucets and cut your annual water consumption by 50%. 
  • Install a low-flow toilet. They use only 1.6 gallons per flush, compared to 3.5 gallons per flush for pre-1994 models. If you have an older model, adjust your float valve to admit less water into the toilet’s tank. 

Of course, you don’t need products to save water — behavioral changes also add up quickly: using a broom instead of the garden hose to clean your driveway can save 80 gallons of water and turning the water off when you brush your teeth will save 4.5 gallons each time.

4. Clean green. Stop buying household cleaners that are potentially toxic to both you and the environment. In his book, “The Safe Shopper’s Bible,” David Steinman suggests reading labels for specific, eco-friendly ingredients that also perform effectively. These include grain alcohol instead of toxic butyl cellosolve, commonly found in carpet cleaner and some window cleaners as a solvent; coconut or other plant oils rather than petroleum in detergents; and plant-oil disinfectants such as eucalyptus, rosemary or sage rather than triclosan, an antifungal agent found in soaps and deodorant. Or, skip buying altogether and make your own cleaning products. Use simple ingredients such as plain soap, water, baking soda (sodium bicarbonate), vinegar, washing soda (sodium carbonate), lemon juice and borax and save money at the same time. Check out these books by Annie Bertold-Bond for cleaning recipes: “Clean and Green” and “Better Basics for the Home.”

5. Let there be energy-efficient light. Compact Fluorescent Light bulbs (CFLs) use 66% less energy than a standard incandescent bulb and last up to 10 times longer. Replacing a 100-watt incandescent bulb with a 32-watt CFL can save $30 in energy costs over the life of the bulb.

6. Save a tree, use less paper.  You can buy “tree-free” 100% post-consumer recycled paper for everything from greeting cards to toilet paper. Paper with a high post-consumer waste content uses less virgin pulp and keeps more waste paper out of landfills.

Other tips:

  • Remove yourself from junk mail lists. Each person will receive almost 560 pieces of junk mail this year, which adds up nationally to 4.5 million tons, according to the Native Forest Network. About 44% of all junk mail is thrown in the trash, unopened and unread, and ends up in a landfill. To stem the flow into your own home, contact the Direct Marketing Association’s Mail Preference Service at P.O. Box 643, Carmel, NY 10512, or download the online form. Opt out of credit card or insurance offers at OptOutPrescreen.com or by calling 888-567-8688, a single automated phone line maintained by the major credit bureaus.
  • Buy unbleached paper. Many paper products, including some made from recycled fibers, are bleached with chlorine. The bleaching process can create harmful byproducts, including dioxins, which accumulate in our air, water and soil over time.

Finally, here’s a third answer to the old “paper or plastic” question: No thanks. Carry your own cloth bags to the store to avoid using store bags.

7. Want hardwood floors? Opt for bamboo. Bamboo is considered an environmentally friendly flooring material due to its high yield and the relatively fast rate at which it replenishes itself. It takes just four to six years for bamboo to mature, compared to 50-100 years for typical hardwoods. Just be sure to look for sources that use formaldehyde-free glues.

8. Reduce plastics, reduce global warming. Each year, Americans throw away some 100 billion polyethylene plastic bags — from grocery and trash bags to those ultra-convenient sandwich bags. Unfortunately, plastics are made from petroleum — the processing and burning of which is considered one of the main contributors to global warming, according to the EPA. In addition, sending plastics to the landfill also increases greenhouse gases. Reduce, re-use and recycle your plastics for one of the best ways to combat global warming.

9. Use healthier paint. Conventional paints contain solvents, toxic metals and volatile organic compounds (VOCs) that can cause smog, ozone pollution and indoor air quality problems with negative health effects, according to the EPA. These unhealthy ingredients are released into the air while you’re painting, while the paint dries and even after the paints are completely dry. Opt instead for zero- or low-VOC paint, made by most major paint manufacturers today.

10. Garden green. First, use compost instead of synthetic fertilizers. Compost provides a full complement of soil organisms and the balance of nutrients needed to maintain the soil’s well-being without the chemicals of synthetic fertilizers. And healthy soil minimizes weeds and is key to producing healthy plants, which in turn can prevent many pest problems from developing to begin with.

  • Use native plants as much as possible. Native plants have adapted over time to the local environment and support native animals. They also use less water and require less of your attention.
  • Focus on perennials. Gardening with plants that live for more than one year means you don’t have to pay for new plants every year; it also saves the resources used commercially to grow annuals.
  • Stop using chemical pesticides. American households use 80 million pounds of pesticides each year, according to the EPA. These toxic chemicals escape gardens and concentrate in the environment, posing threats to animals and people, especially children. A better alternative is to try a variety of organic and physical pest control methods, such as using diatomaceous earth to kill insects, pouring boiling water on weeds or using beer to bait slugs. You can find more non-chemical pest control tips at the National Audubon Society’s site.

Finally, consider using an old-fashioned push mower. The only energy expended is yours. Full Story

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Does it ever make sense for a homeowner to pay off a mortgage early?

According to Kiplinger.com, the answer depends on the interest rate of the loan and the timing of the payoff.

Paying down a 6% mortgage is the equivalent of earning a 6% taxable return on your money. You should be able to beat that return by investing your money elsewhere, especially when investing for the long term.

“If you have a very low interest rate on your loan and know that you can earn a higher return with additional money you have to invest, it’s OK to keep the mortgage,” says Los Angeles CPA Michael Eisenberg.

Investing outside your mortgage also gives you easier access to your funds because you don’t have to borrow against your home equity to get your money. Paying more toward your mortgage can reduce the total interest paid, and you might pay off your loan earlier. But it doesn’t lower your payments, and if you’re still in the early years of the loan, you might not see the difference for a decade or more.

Your priorities may be different, however, if you’re nearing retirement and your mortgage is close to being paid off. In that case, making extra payments can speed up the payoff, lowering your expenses after you leave your job. In Eisenberg’s experience, “most people don’t want to have debt when they retire.”

Paying off the mortgage early made sense for Myrna Oliver, 64, who worked at the Los Angeles Times for more than 30 years. When Oliver was in her mid-50s, many of her colleagues were getting buyout offers. She wasn’t ready to retire yet, but she wanted to be able to jump at a good offer if one came her way. To do that, she needed to cut her post-retirement expenses — especially the mortgage on her condo in downtown Los Angeles.

“I didn’t want the mortgage payments to figure into my retirement spending,” says Oliver.

So Oliver began making extra payments toward her 7.5% loan whenever she got a raise, a bonus or extra money from some other source. At age 60, she paid off the loan — eight years early — and shifted the money to her 401(k) plan to take advantage of catch-up provisions for contributors who are 50 or older. This year, employees in that age range can kick in an extra $5,000, on top of the $15,500 that all workers may contribute.

When Oliver got a buyout offer last year, she had only three weeks to make a decision, but it was a no-brainer.

“Having the mortgage paid off gave me the freedom to take early retirement,” she says — and to take a year off to travel. Full Story

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How many times have you done your taxes and, three weeks later, learned you had missed the opportunity for a deduction? Too many, I’m sure. How can you not miss these deductions the next time? Start planning now.

I’ve posted previously about What is Deductibe When Buying a Home, but here are two of the most often overlooked tax deductions for current homeowners that can affect your tax bill for 2007 and your tax planning for 2008.

New points on refinancing

With interest rates so low over the past few years — even in 2007 and 2008 — lots of homes have been refinanced, sometimes more than once.

Any points you pay to refinance your home can be deducted on a monthly basis over the life of the new loan. So, if you refinanced your mortgage on June 1, 2007, for a 20-year term, seven out of 240 months will have passed after Dec. 31. If you paid $2,400 in points, you can write off $70 ($10 a month for seven months) for 2007. You can write off $120 for 2007 and each year thereafter until the points have been deducted in full. The amount may not be huge, but every little bit helps.

Old points on refinancing

This is one deduction lots of people miss. All unamortized points on an old refinancing are deducted in the year of a new refinancing.

So, let’s say you refinanced on June 1, 2006, and paid $2,400 in points. You refinanced again on June 1, 2007. You can deduct all the remaining points on the 2006 loan. That’s $2,280 plus the $50 you could deduct for January through May 2007. Likewise, if you refinance the 2007 loan in 2008 (if interest rates stay low), you will be able to write off the remaining balance on your 2008 return. Full Story

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With rents in many cities skyrocketing, men and women marrying later and a divorce rate for first-time marriages that hovers at about 45%, it’s no wonder more American couples are deciding to shack up.

There were an estimated 6.02 million unmarried-partner households in the U.S. in 2006, according to the Census Bureau’s latest research. This number includes 779,867 same-sex households. When the census began measuring unmarried partners in 1996, there were only 2.86 million opposite-sex couples.

Though you likely know at least one cohabiting pair, unlike their married and single peers, unmarried couples are not an easy group to quantify. They cannot check the single or married box truthfully, and there is little but a shared address to signify their official commitment.

But couples who live together have needs, too. In the Forbes.com roundup of the best cities for couples, they’ve identified what this growing demographic requires to maintain a stable relationship while on the path to marriage or something less traditional. They selected the country’s 40 largest metropolitan areas and collected data on marriage and divorce rates for the 20- to 34-year-olds who live there, the affordability of a starter home, the area’s income disparity and the availability of family counseling. 

Dallas, the city made famous on television for its scheming lovers and dysfunctional relationships, topped the list. Four other Texas cities are in the top 10: Houston, Austin and San Antonio. Cities at the bottom of our list, with low marriage rates, high income disparity or poor housing affordability, included Cleveland, Providence, R.I., and Miami.

Top 5 cities for couples

  1. Dallas
  2. Houston
  3. Minneapolis
  4. Denver
  5. Austin, TX

You can see Forbes’ full slide show of best cities for couples hereFull Story

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With reports that foreclosures are up 51% from 2006 and that home ownership took a record plunge in 2007, RISMedia says it’s clear that 2008 will be a year of economic uncertainty, and at worst, a year of continuing downturn. As consumers continue to feel the squeeze, the American Society of Home Inspectors (ASHI) reminds homeowners and those eager to sell to look to ASHI Certified Inspectors when considering options for buying, selling or maintaining their home in a down market.

“ASHI has taken steps to arm its members with the resources and support to provide a diverse range of services for homeowners,” said Brion Grant, 2008 ASHI president. “We know that one-size doesn’t fit all in this market. From energy audits to maintenance inspections, phased-inspections and more, we’re arming members with tools to diversify their services so that they can meet the needs of the public.”

New Services for Homeowners

Energy audits are among the core services that ASHI is encouraging its members to fine-tune so consumers have the benefit of potential cost savings. In December, members of ASHI’s Blue Ridge Chapter (Virginia) participated in group training with a nationally certified energy auditing company to secure certification to perform energy audits in their region. “With the cost of fuel skyrocketing, energy audits can uncover inefficiencies and point to savings,” added Grant. “ASHI is working in conjunction with a certifying organization to provide opportunities for training and certification so that its members can offer this ancillary service nationally.”

Another service homeowners may not think about is maintenance inspections.

“Maintenance should be at the top of every seller’s list this year, said Grant. “In this market, home buyers have more properties to choose from, and will look closely at how well a home has been kept up.”

Homeowners who are serious about selling their home in 2008 should consider hiring an inspector to conduct a maintenance inspection, which includes checking everything from the foundation, roof and gutters, to a home’s exterior and interior walls, electrical wiring and plumbing. ASHI also offers a maintenance checklist, a list of items in the home that should be maintained annually or by season. Those interested in obtaining a copy of ASHI’s home maintenance checklist should contact a local ASHI Certified Inspector via ASHI’s Website http://www.ASHI.org.

Services for Buying or Building a Home

With a record 2.18 million homes sitting vacant and sellers chomping at the bit to unload their home, buyers are at risk too. Before purchasing a home, ASHI encourages buyers to hire an inspector to conduct a pre-sale inspection to determine its quality, efficiency and safety. “There are a lot of people who are willing to do whatever it takes to sell their homes,” said Grant. “In a market like this, people are quick to jump in because of the rock-bottom price rather than the quality and safety of the home.” And, with many bank-owned properties being sold “as is,” meaning the seller will not be performing any repairs, pre-sale inspections can provide vital information about costly defects.

Phased inspections are also a good way to protect the interests of people who are building a home from scratch. By engaging a home inspector early on, even in the site selection, homeowners can benefit from having an inspector assess the quality of construction at every step. From pouring the foundation, to closing the walls, home inspectors can provide an unbiased assessment of a home that will save homeowners time and money.

“I wish forecasting the future was as easy as picking up a Magic 8-Ball,” said Grant. “‘Outlook good’ would be a welcomed relief from what we’ve seen over the last year. But Americans are resilient, and ASHI is committed to helping homeowners weather this storm.” Full Story

Despite repeated highly publicized reports of a home sales slump and pricing slides, there’s a surprising amount of positive consumer sentiment, says RISMedia — and perhaps a good measure of homeowner denial as well: Even in a negative home pricing environment, 77% of homeowners from around the country believe the value of their home has increased or remained the same in 2007, according to a recent Zillow.com survey conducted by Harris Interactive(R).What’s more, sizable fractions of all homeowners — not just those who believe their homes appreciated in 2007 — say they are planning to do things in 2008 — even before the Fed’s latest interest rate cuts – that you might not expect during the housing, construction and credit slumps:

– 82% will spend the same or more on minor home improvements (install new garbage disposal, repaint or wallpaper a room).
– 67% say they will spend the same or more on major home improvements (replace the roof, remodel the kitchen) this year.

– About a third say they are more likely or equally as likely to:
– Take out a home equity loan (35%)
– Refinance their mortgage or take out a second mortgage (36%)
– Sell their homes (34%)

How Bad It Is in the Reality-based World

The Zillow(R) Q3 Home Value Report says U.S. home values dropped 5.7% nationwide year over year (2007 to 2006). Zillow plans to release its Q4 report Feb. 12 and preliminary results indicate home values in most U.S. markets have continued their descent. In a recent report, Merrill Lynch predicted “housing prices will remain in free fall,” declining 15% in 2008 and 10% in 2009, “with more depreciation likely beyond the forecast period,” even if the Federal Reserve continues to cut interest rates.

How Homeowners Perceive the Situation

About a third of homeowners (36%) in the Zillow.com Home Value Survey said their homes had actually increased in value during 2007. Zillow’s Zindex(R) data proves the contrary, showing median value declines across regions as of October 2007.

What’s Driving Homeowner Perception?

“This survey reveals that despite the data to the contrary, people either aren’t paying attention to their housing market or are in denial about their own home’s value,” said Dr. Stan Humphries, Zillow.com vice president of data & analytics. “This likely reflects the fact that most Americans have not realized home-related losses because they’re staying in their homes. Even in declining markets where a greater percentage of new homeowners are underwater on their mortgage, it’s important to remember most people are not really affected by declining values unless they absolutely must sell or need to immediately refinance or withdraw equity. This has contributed to the healthy investment intent, particularly in home upgrades, despite the downward trending markets.”

How to Stay on Top of a Home’s Value?

Zillow recently increased its database of homes with Zestimate valuations to 67 million, which equates to about three out of four U.S. homes. People can easily check a home’s value by visiting Zillow.com and typing in an address. Full Story

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