With Terry Story, a 30-year veteran with Keller Williams located in Boca Raton, FL
Steve spoke with Terry Story, a 30-year veteran at Keller Williams. During this week’s real estate roundup, Terry and Steve talked about flood insurance and the importance of getting it before hurricane season hits. They also talked about new incentives for first-time home buyers.
The Importance Of Flood Insurance
Hurricane season is right around the corner. It’s critical for you to get flood insurance before hurricanes start flaring up. Once the first named storms start rolling off the coast of Africa, it’s next to impossible to get a policy. It’s not necessarily an exhilarating part of real estate, but it’s important. And the great thing is, with rates being as reasonable as they are today, it’s not unreasonable for people living outside of major flood zones to pick up flood insurance. With the crazy weather plaguing the states in the past few years, flood insurance could pay off big in the end.
Incentives For First-Time Home Buyers
A recently published article mentioned that ten states in the U.S. are offering savings accounts to home buyers, specifically targeting those of you buying homes for the first time. Basically, these states are giving out tax deductions to you when you set aside money for a down payment on a home. This is similar to an IRA or an HSA account. On top of this, any interest earned on these accounts is tax-free. So, which states are we talking about? Currently, the following states are offering this incentive: Alabama, Colorado, Iowa, Minnesota, Mississippi, Missouri, Oregon, Virginia, Wyoming, and Oklahoma. The general thought is that as this incentive is used more and becomes more popular, more states will jump on the bandwagon.
So how does this work? The idea is this: if you’re a first-time home buyer, and, for example, you’re married, you’ll be filing jointly. This incentive says that if you put $10,000 aside for a down payment (or, $5,000 for each individual) that money is now tax deductible. That means that the government is now basically helping you with the purchase of your first home. This is designed to encourage you to continue saving money and work towards becoming a homeowner.
Tax Reform: The Myth And The Reality
What seems to be turning out to be a myth is that tax reform —which caused, to a certain degree, the elimination of deductions for mortgage interest and taxes—is forcing people out of high tax states and sending them all packing to Florida.
So, what is actually happening? A study of the ebb and flow of people moving from state to state was actually zero, or at least so small that it didn’t really register a change. One of the major reasons for this? Demographics, and tied to that, job opportunities. If you’re making a killing in, for example, New York, you’re going to stay there, despite it being one of the most highly taxed states in the country.
Another big reason for the lack of interstate movement is familial ties. Unless the entire family is moving or big chunks of the family are moving, most people choose to stay where they are to be close to their loved ones. This is especially true if you’ve grown up in the same general area. The only real reasons that people tend to move across state lines is because a) their family is moving and b) they have guaranteed work wherever they’re moving to.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: It’s time for Real Estate Round-Up. This is the time every single week we get together with noted real estate agent, Terry Story. Terry’s a 30-year veteran with Keller Williams located in Boca Raton, Florida. Welcome back to the show, Terry.
Terry Story: Thanks for having me, Steve.
Steve Pomeranz: Home prices still rising, Terry?
Terry Story: Yay, yay. According to CoreLogic Case Shiller, the 20-city index, it actually, this year, rose by 3%, so things are still moving up.
Steve Pomeranz: But slowly.
Terry Story: However, slow. Slower.
Steve Pomeranz: Slower. After 2012, once the financial crisis got behind us a little, housing prices started to rise pretty dramatically. We actually talked about this. We were kind of worried they would rise too much, and they would prevent a lot of buyers from being able to enter the market. Actually, last year we were kind of in that situation. And then interest rates rose, and that took even more buyers out of the market.
Terry Story: That’s right.
Steve Pomeranz: When buyers are out of the market, that puts pressure on prices, demand, and so on. So lower demand, lower prices. So prices are starting to abate somewhat. Now interest rates have come down nicely and wages are rising pretty nicely. And this combination is actually pretty positive for real estate right now.
Terry Story: Absolutely, it is.
Steve Pomeranz: Well, that’s very…
Terry Story: You want me to add more to that?
Steve Pomeranz: Well, I would have liked you to, but that’s okay. Let’s move on to the ever exciting, ever, ever exciting subject of flood insurance.
Terry Story: Yay, flood insurance.
Steve Pomeranz: I think the important thing we really want to say here is that we are in May right now, and we want to make sure that if you’re going to get flood insurance, you get it now.
Terry Story: Before hurricane season. And hurricane season’s right around the corner. Once we’re in hurricane season and there’s a name storm that shoots off coast of Africa, pretty much you can’t get insurance.
Steve Pomeranz: Once you see those storms coming off Africa and you see it headed our way…
Terry Story: It’s too late.
Steve Pomeranz: … it’s too late.
Terry Story: Way too late.
Steve Pomeranz: It used to be if it hit the Bermuda Triangle.
Terry Story: It used to be a little triangle. Now it’s like, you know-
Steve Pomeranz: You’ve got half the world.
Terry Story: … half the world is in-
Steve Pomeranz: So that is the lesson on flood insurance. It’s boring, but it’s actually necessary. Obviously, if you’re in a flood zone, you absolutely need it. But there is some argument that can be made, since the cost is relatively reasonable, even if you’re not in a flood zone to get it. Because why not get that extra protection just in case?
Terry Story: And there is a difference between flood insurance and hurricane insurance.
Steve Pomeranz: Oh, yeah.
Terry Story: So know the difference.
Steve Pomeranz: Okay. There was an article that you and I read that we really were surprised and actually delighted that there are now 10 states in the US that are providing homebuyer savings accounts. Now what I mean by that is that these states are giving a tax deduction for money put aside for a down payment. And especially for first-time homebuyers. A tax deduction, almost like an IRA, you get a tax deduction. Or an HSA account, a medical account. And also the interest that you earn in these accounts are not taxable, they’re tax-free.
Terry Story: I think it’s wonderful. I actually would like to see the numbers go higher than they have, 5,000 for individual and 10,000. Well, I guess it’s a year for joint filers. So we have 10 states. We got Alabama, Colorado, Iowa, Minnesota, Mississippi, Missouri, Oregon, Virginia, Wyoming, and Oklahoma. So I think there will be more to follow.
Steve Pomeranz: The idea is that you’re a first-time home buyer. Let’s say you’re married, you’re filing jointly, you put $10,000 aside for the down payment. That 10,000 is now deductible from your taxes. So you basically have the government helping you out with this home purchase.
Terry Story: Correct. And it’s incentivizing you to put more money towards down payment.
Steve Pomeranz: Yeah.
Terry Story: And work towards the goal of home ownership, because that’s what we do in America, right? We all want to be homeowners.
Steve Pomeranz: That’s right. Now let’s say you’re doing it and you’re two years in advance, you’re getting 2% on this $10,000, that’s $400 worth of interest over the two years. That is not going to be included in your taxable report, so that’ll be $400 tax-free. Very good.
Terry Story: I’d take it.
Steve Pomeranz: Okay. Good. I was very excited to hear that. It looks like states that… Even though Colorado’s in there. They don’t need to advance to kind of push real estate. Oklahoma perhaps and Missouri and other places.
Terry Story: Mississippi.
Steve Pomeranz: Mississippi, and so on. But I still think maybe this is a trend that we’ll start to see as local municipalities and states try to spur on this great thing called homeownership.
Terry Story: That’s right.
Steve Pomeranz: Okay, cool. All right. Now, there is, or seems to be, a myth as we’re finding out in the news reports that tax reform, which caused the elimination of deductions for mortgage interest and taxes and things like that up to a certain degree, are forcing people out of these high-tax state areas and they’re all coming to Florida.
Terry Story: That’s what everyone thinks.
Steve Pomeranz: Ain’t so.
Terry Story: I agree.
Steve Pomeranz: Yeah, so let’s-
Terry Story: Seen a couple.
Steve Pomeranz: Yeah. So let’s talk about what’s actually happening. They did a study to see what the ebb and flows were with people moving from state to state, and they found that there was no change. There’s been some ideas as to why this is so. First of all, they think that the demographics and job opportunities are a big part of that consideration.
Terry Story: Sure, absolutely. If you’re making a million dollars in New York and you’re going to come to Florida, and you’re going to make 300,000, you’re better off staying in New York and paying the big taxes. Right?
Steve Pomeranz: Right.
Terry Story: So that was part of it. And the people that this was affecting, Steve, is 1%.
Steve Pomeranz: Yeah, the one percenters.
Terry Story: So it’s the one percenters. And then there’s other reasons to keep people where they are. Family ties. So unless the whole entire family, especially if it’s someone that’s grown up there. What I can tell you, Steve, and what we have seen, people in these states who were considering making the move because there’s family already down here and they can have a job.
Steve Pomeranz: Yeah. So maybe it pushed the decision forward.
Terry Story: It pushed the decision forward for some people.
Steve Pomeranz: Yeah, you had mentioned when we were talking off air that maybe they could telecommute. Maybe they could keep their business in, let’s say, New York state and do it from down here. But that’s only… I don’t think that’s-
Terry Story: It’s very small percentage of people.
Steve Pomeranz: If you operating a business you got to be there, mostly. So I think it’s the demographics, as you just mentioned, is the one-percenters, so it’s kind of a smaller group of the population, even though they’re paying high percentage of taxes. And I also think that taxes were just paid, so the sting is fresh.
Terry Story: Right. That’s right.
Steve Pomeranz: So I think this is going to take a year or two to play itself out as each year they realize-
Terry Story: Oh, wow, I got stung again. Oh, stung again.
Steve Pomeranz: Exactly. All right. We don’t really have any time left, unfortunately. We have so many other things to talk about. I talked a little too much, I think, this episode. Anyway, my guest, as always, is Terry Story, 30-year veteran with Keller Williams located in Boca Raton, Florida. And she can be found at terrystory.com. Thanks, Terry.
Terry Story: Thanks for having me, Steve.