What propositions are real estate related? Prop. 5 deals with Prop. 13 for older home owners. But are there other propositions that are also real estate related?
Do You Support Proposition 5 - Transfer Property Tax Base? Prop. 5 allows those 55 and older to transfer their property tax base to any home they purchase in the State of California.
Today only less expensive homes allow Prop. 13 tax base to transfer to a new property. And if buying a property in a different county, only 11 counties allow Prop. 13 tax base to transfer to the new property.
But under Prop 5, if a couple's current home has a taxable value of $200K with a market value of $600K, and they purchase a more expensive home for $700K in any county, Prop. 5 allows the new home's tax base to be $300K instead of $700K.
Here is the math.
The prior home taxable value ($200K) is added to the difference of the new home market value ($700K) minus the market value of their old home ($600K).
$200K + ($700K - $600K) = $300K
The property tax on their new home is based on $300K * 1.1% = $3,300 per year instead of $700K * 1.1% = $7,700 per year. This is a savings of $4,400 for the first year.
If the couple buys a less expensive home, older home buyers still benefit. Say the new home costs $450K, the new home taxable value would be $150K.
$200K x ($450K / $600K) = $150K
Their property tax will only be $1,650. Compare this to $4,950 tax based on $450K market value or $2,200 based on their current Prop. 13 tax base of $200K.
Prop. 5 allows couples in high demand areas like Los Angeles and San Francisco to move to less expensive areas and still not lose their tax base. Over half of all owner occupied homes in California are owned by those 55 and older. Real estate agents would benefit if Prop. 5 passes.
We support Proposition 5!
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Mortgage Rates Rise. Will Home Prices Fall? Mortgage rates are now almost at 5%, a huge jump compared to rates at 4% less than a year ago. This represents a $60 monthly increase on every $100K borrowed.
A home priced at $600k now costs an additional $360 more per month.
But will home prices fall?
Prices are based on supply and demand and whether new home buyers can afford the payments.
In my view, mortgage rates rule!
This means even if home buyers are willing to pay more, mortgage companies won't be able to qualify as many buyers for a property as before.
Sellers are likely to ask for the same price a home sold for a year ago down the street (at 4% interest rates). Our recommendation to buyers is to offer a starting price which matches the monthly payments calculated at 4% and then ask for a price reduction to match the same monthly payments but using 5% interest rates.
What are your thoughts with regards to rising mortgage rates?