Over 55? Moving? Avoid Property Tax Increases With Props 60/90

When a home is sold in the state of California, the new home owner faces a reappraisal of the home's value and a corresponding adjustment to the home's base tax value.  Due to historically appreciating home values, this typically translates to an increase in the amount of property taxes paid by the new homeowner.  This can be problematic for older or retired people with decreasing or fixed incomes who sell their long time home looking to downsize.

For example, let's say a couple bought a house in Redwood City in 1992 for $250,000, with a 1.25% tax rate.  This would put their annual property taxes at $3,125.  The county assessor is allowed to raise your property's assessed value by 2% a year while you own it.  Assuming they did that every year all the way up until 2017, the property's assessed value would now be $410,151, bringing the annual property tax total up to $5,126.

Now the couple is retired, their kids have moved out, and they're hoping to downsize to liquidate some of the equity they've built up in their home.  So they sell their 3bed, 2 bath home for $1,528,600 (the average sales price in 2017 for a 3BD/2BA RWC home), and buy a 2 bed, 1 bath home down the street for $1,050,046 (the average sales price in 2017 for a 2BD/1BA RWC home).  They've done fantastic in terms of taking out equity from their previous home, but now they'll be paying property taxes based on the value of their new home.  At 1.25%, that puts their new annual property tax total at $13,125 - more 2.5 times greater than what they paid before!  Over the course of 10 years they'll be paying more than $130,000 just in property taxes.  This could be tough to swing with a fixed income, especially if you have pre-existing debts (i.e. loan for home renovation).

This is why California passed Prop 60, which allows homeowners over the age of 55 to sell their home and transfer its current assessed value to their new home - as long as the two homes are in the same county.  Prop 90 was later passed to allow inter-county transfers, but only at the discretion of each county.  Currently only 11 counties in California have an ordinance enabling the inter county transfer: Alameda, Orange, San Diego, Tuolumne, El Dorado, Riverside, San Mateo, Santa Clara, Ventura, Los Angeles, and San Bernardino.

Are you Eligible to Apply for the benefits of Prop 60/90?  If you meet the requirements below, then yes!

• You or your spouse must be at least 55 years of age when the original property was sold.
• The original property and new property must be within the same county.
  You can only use the transfer once in a lifetime.
• The new replacement property must be of equal or lessor value than the original property sold.
• The replacement property must be built or bought within 2 years of selling the original property.
• Your original property must be your primary residence and have been eligible for the homeowners' exemption or disabled veterans' exemption.
• Your replacement property must be your primary residence and must be eligible for the homeowners' exemption or disabled veterans' exemption.

One Time Use - You can only apply for the benefits of Props 60/90 once in a lifetime with one exception.  If the benefits have been used once based on age, they can be used again based on disability.

For more information, visit the California State Board of Equalizations

Fed Increase Interest Rates for the 3rd Time in 6 Months

The Federal Reserve raised their benchmark interest rate by a quarter point this morning, marking the 3rd rate increase since December of last year.  At the press conference announcing the increase, Fed Chair Janet Yellen said the rate hike "reflects the progress the economy has made and is expected to make toward maximum employment and price stability".

The Fed's decision to raise rates again signals a growing confidence in the American economy, which saw the unemployment rate hit a 16-year low in May.  The Fed's Board members predict there will be one more increase before the year's end.

What does this mean for real estate?  As it becomes more expensive for banks to borrow from the Fed, it typically becomes more expensive for consumers to borrow from the banks.  This is why people heavily monitor the Fed's interest rates to forecast where mortgage rates might be going.  That being said, average 30-year fixed mortgage rates have actually been on a slight downward trend over the past few months, despite two recent hikes in the Federal Reserve rate.

Mike Fratantoni, Chief Economist for the Mortgage Bankers Association, speculates that interest rates abroad might be holding back our mortgage rates here.  While the Federal Reserve is showing confidence in the US economy by continuing to raise interest rates, central banks in other countries are still trying to stimulate their economies by keeping rates low.  This coupled with a strong foreign demand for safe assets (US real estate), is acting as somewhat of an anchor to US mortgage rates, according to the MBA.  Still, many economists, including Freddie Mac's Sean Becketti, expect that US mortgage rates will begin to gradually rise as the year progresses.

If you're thinking about buying and would like to explore financing options/current interest rates, I will gladly connect you with one of my trusted loan advisors.  Feel free to call any time: (650)222-2327, or email at camilo@realsmartgroup.com