The other day, my car’s “check engine” light came on, so I motored on over to the auto parts store to have them plug in their code reader and tell me what’s going on under the hood. When the store clerk ran down the code, he said, “It’s the EGR.” (While I smiled outwardly, inwardly I groaned because usually things that are referred to by their initials cost a lot of money: MRI, ACL, IRS, etc. Ugh!) He explained that EGR stood for Exhaust Gas Recirculation valve, and that it was a $90 part that . . . and I stopped listening because I was amazed that I finally had something on my car that wasn’t going to cost the naming rights to an unborn grandchild and a vital organ to fix. However, before I got cocky and thought the automotive gods were finally smiling upon me, I decided I better ask the guy if he could show me where on the engine this three-letter wonder resided. With my luck, it WAS GOING TO COST ME a vital organ because it will require a special tool of which there are only two in the world, and the one that’s available would need to be flown in from Madagascar.
While Auto Parts Guy was looking up a diagram on the store computer, he told me, “Oh, just thought you’d like to know: the part has a lifetime warranty.” I stopped him and said, “Do you see the irony there?” He just blinked, so I added, “If the part is so reliable to have a lifetime warranty, why does mine need to be replaced?” He smiled and went back to looking for the diagram.
Auto Parts Guy showed me that it was a VERY accessibly spot and explained that replacing the part only required removing the snap-onelectrical connector and two nuts. The old part slips off, and the new part goes on. “It’s easy,” he said. “Anyone can do it.” Upon hearing that, dread suddenly filled me. I looked him in the eye and said, “Those are six very simple words that, when taken individually, are absolutely harmless, but when you arrange them in this particular order, you’ve just created an incantation to summon demons from the deepest corners of Hell and insured SOMETHING will go wrong. You do realize that, right?” He thought I was kidding. I was not!
I got home and popped the hood to change out the EGR valve. After removing the snap-onelectrical connector, I went to remove the first nut with the socket wrench. The nut didn’t want to budge, and I had visions of something catastrophic happening because I applied too much pressure. Just as I was about to lose myself to anxiety, the nut gave and began to unthread smoothly from the bolt. With one nut removed, I could see that the valve WAS easily removable,so I felt a calm wash over me as I went to address the second nut. It needed a bit of coaxing, too, but quickly began unthreading without a problem. I was almost giddy when I went to remove the second nut and IT FELL INTO THE DEPTHS OF THE ENGINE. I was cursed! I looked everywhere for that infernal nut, and it was nowhere to be found. The engine had somehow absorbed it. Ugh!
After replacing the old part with the new one, securing the one nut as tightly as I dared, and reconnecting the electrical connector, I carefully drove back to the auto parts store. I found Auto Parts Guy and explained what had happened and asked if they had any extra nuts. He went into the back and rummaged around and came back with a nut. We popped the hood on my car, and he threaded the second nut onto the bolt, tightened it, and looked up at me and said, “It’s easy. Anyone can do it.” Oh, the irony!
Many of today’s first-time homebuyers are filled with anxiety over whether now’s the right time to buy. Just like how Auto Parts Guy had to SHOW me to convince me, we have to do the same with these first-timers. “It’s easy, anyone can do it” won’t suffice. And if we take the time to SHOW them so they are comfortable with the process, they’ll be customers for life . . . sort of like a lifetime warranty, right?
Regardless of your political leanings or feelings toward how we got to this point in our economy, it’s estimated that the average American taxpayer will see a 26% increase in their tax return (or 26% decrease in what they owe) for 2018. This little nugget of statistical wisdom comes courtesy of the party animals over at Morgan Stanley. (Word to the wise: hide the lampshades when you invite them over to the house for your annual holiday fete.)
According to a quick Google search, the average tax return last year was just shy of $2,800. This means that a 26% increase will put the average tax return for 2018 at just over $3,500. For those of us who don’t light cigars with $100 dollar bills, I wouldn’t mind an extra seven Benjaminscoming back to me!
Yes, there are many financial professionals and pundits who write endless articles and wring their hands on cable news programs over how stupid it is to give your money to the government as an interest-free loan for a year so you can get a return when you file your taxes. In theory and principle, they couldn’t be more right. However, the reality is that most of us hate OWING money at the end of the year, so we overestimate what we have deducted from our paychecks to make sure we don’t have a bill staring us in the face on April 15th. The tax code is thicker than all the books we were required to read in junior high and high school combined. Don’t get all worked up, financial folks, over the fact we’d rather spend our weekends binge-watching something on Neftlixthan poring over spreadsheets and algorithms to figure out the exact amount of money we should deduct so we’re “even” with Uncle Sam at the end of the year!
If you haven’t already, you may be asking yourself at this point in this week’s newsletter, “Why are we talking about taxes in December?” Two words: preemptive strike. (No, I’m not talking about toilet papering the neighbor’s house before he can get yours.) Employers will be sending out W2s next month, so now is the ideal time to plant the seed with potential homebuyers that their tax return could be the perfect source for all or a part of a down payment on a house. While other real estate agents are busy posting photos on Instagram and Facebook of their Schnauzer dressed as Santa Paws or their Calico, Mrs. Finickypants, wishing you a Meowy Christmas, reach out to your prospective clients with posts about getting into a home after the first of the year with their tax returns.
We’re two weeks away from Christmas and three weeks from New Year’s. Most folks aren’t kicking and screaming to go look at houses at this very moment. Spend some time getting creative to plant seeds for the beginning of the year. If you want to get cute, have Santa Paws and Mrs. Finickypants holding a W2 and a 1040 form in the accompanying photo. It couldn’t hurt (unless Mrs. Finickypants is fond of scratching).
Last week, it seemed, the big news in the real estate/mortgage world was that conforming loan limits were increased for 2019. Without a doubt, that is interesting and tells us that, among other things, the housing market continues to strengthen and our economy continues to improve. I’ll pause here for you to do the happy dance.
Depending on your part of the country or your market in which you specialize, you may be dealing regularly with homes that require a mortgage a little shy of $500K so the conforming loan limit being raised is a huge deal. However, if you are working with homes regularly and decidedly south of that price point, this could be like trying to make a big deal to people living in Tucson, Arizona that the cost of down-filled parkas has significantly dropped.
Let me put up three statistics I recently came across that, I believe, will have more universal significance:
Stat #1: According to the US Census Bureau, 30.3% of homes owned in our nation have absolutely no mortgage on them – they’re owned free and clear.
Stat #2: According to a new report from ATTOM Data Solutions, dated November 8, 2018, 14.5 million homes are “equity rich.” In plain English, that means that 14.5 million homes here in the United States that have mortgages on them have AT LEAST 50% equity in them! That number represents 25.7% of the homes in the United States.
Stat #3: According to the same ATTOM report, only 8.8% of homes in the United States are “under water” (the value of the home is 25% less than what is owed on the home) as of the end of the third quarter of this year. The previous quarter of this year, the number was 9.3%. That drop from 9.3% to 8.8% represents over 200,000 homes in just one quarter!
These three statistics can be boiled down to this: if you took 100 homes in a neighborhood to target through door knocking, direct mail, or some other way of looking for new clients, less than nine of those homeowners will be under water and probably not a good candidate. Conversely, though, 56 of those homeowners (30.3% who have no mortgage, thus a boatload of equity, and 25.7% who have 50% of more in equity) will be prime candidates to approach about buying an income property or a vacation home using the equity in their primary home to finance the down payment. The few agents I know who use this data as I’ve described it have significantly increased their production. In fact, most of them began with just their past clients and built on their success quickly from that simple starting point. That makes a lot more sense (and money) than beating the drum about conforming loan limits, right?