Impacts of tax reform on the California housing market
Despite a new record high for the stock market, the first week of 2018 ended with mortgage rates unchanged from the close of 2017. However, the low levels of unemployment and overall enthusiasm for our economy is putting upward pressure on rates. While it’s unlikely that rates will increase significantly in the short-term, since global rates remain low, the sense is that inflation will soon take hold and cause rates to rise.
Quick Tip on Tax Reform and why real estate is still a good investment:
There’s been much debate regarding the potential impact of tax reform on the California housing market. Regardless of the tax reform’s ultimate impact, the potential to generate long term wealth and protect against inflation are still key reasons to purchase a home. Here’s why…
Assuming property appreciation continues, which it should since housing is still scarce, buyers can generate wealth by purchasing a home. Leverage allows for the greatest return. For example, if an individual purchases stock in Apple for $100,000 and the stock increases 10%, the individual will make a return of $10,000 or 10%. However, if the same individual purchases a home for $1M with $100,000 down payment (and a loan of $900,000) and the property appreciates by 10%, the individual will make a return of $100,000 or 100%. Further, if the individual owns the home for at least 2 years, the return will be tax free.
The potential for inflation due to tax reform is another reason to purchase a home. In an inflationary environment, rents will continue to move up, but a buyer’s mortgage payment can remain fixed. Thus, homeowners will be protected from rising housing expenses, whereas renters will be more exposed.
Mortgage Rates
The following are sample rates (as of 01/05) and APRs (Annual Percentage Rate) for purchase loans with 20% down and 760 credit scores:
Conforming Loans (up to $453,100) (remember: High Balance Loan limit now $679,650 )
30-Year Fixed
4.125% / No points / APR 4.15%
3.875% / 1.00 point / APR 3.99%
Jumbo Loans (up to $3,000,000)
30-Year Fixed
4.250% / No points / APR 4.27%
3.875% / 1.75 points / APR 4.04%
10-Year Fixed ARM
3.875% / No points / APR 4.11%
3.625% / 1.00 point / APR 4.07%
7-Year Fixed ARM
3.750% / No points / APR 4.13%
3.500% / 1.00 point / APR 4.12%
Please don’t hesitate to call Ernest Heredia (below) with any financing scenarios you might have. Rates subject to change without notice. Source:
Ernest Heredia Loan Consultant, PERL Mortgage, Inc. o 310.883.7524 f 310.883.7574 233 Wilshire Blvd., Suite 280, Santa Monica, CA 90401 e eheredia@perlmortgage.com w perlmortgage.com/eheredia
