Don Davis Ph:360 652-9994 email: dond@htlnw.com

The Housing Market

Washington State has a Growth Management Act (GMA) that restricts the amount of new housing for any county depending of projected growth.  This is why we have never seen 600 or 800 home developments like in California or Las Vegas or Arizona.  The county will only issue permits to developers based on the projected growth in that area in a certain period.  This is why we were not overbuilt when the slowdown occurred.  Several years ago, in the height of the boom, developers did pay too much for land, but the demand existed at the time. 

 The cost of the land is the biggest variable in the price of a house.  If it costs $100 per square foot to build a house, it doesn’t matter where it is located.  A 2000 sq ft home would cost $200,000 to build regardless if that house is in Edmonds or Arlington.  The difference is the price of the lot that house sits on.  If the lot cost $150,000 then that house would be a $350,000 home if the lot cost $50,000 then it would be a $250,000 home for the same house.  This is also why a housing market would bottom out.  The cost to replace or build a new home can only go so low.  If existing homes sell for substantially less than it would cost to build a new one, no on would ever build another new home. One of the biggest reasons that few new homes are not being built right now is the fact that most of the banks the builders would get their financing from are under cease and desist orders from the FDIC.  If the builder can’t get funding to build, then nothing gets built.  Once the inventory of homes decreases and the prices once again appreciate, the banks will free up capital and the builders will get back to work.

What makes the Puget Sound region so unique is that we can really only go north, south and up (high-rises) to build new homes (east is mountains and west is water).  There is virtually no buildable land left in most of King, North Pierce and South Snohomish Counties.  Essentially if any new homes are going to be built the developers need to go to south Pierce or North Snohomish County.

 Unfortunately the news media doesn’t report any detail about our own housing market.  This seems really stupid to me.  We have local newspapers, TV and radio stations and they seem to cite the worst statistics available for the housing market.  They will report on national statistics and default rates.  I defy you to send me a detailed report from the news sources that cite our own local market statistics.  It is not newsworthy.  They aren’t going to be able to sensationalize this market because there is nothing to sensationalize.  While we have seen a modest decline in home prices from the unrealistic highs in late 2007, we have plugged along this year selling down the inventory from an almost nine months supply to almost a four month supply.  At this rate by this time next year we should be under two months supply with few new homes being constructed.  What does 2011 hold in store?  We just might be out of home to sell.  If you own a home you will be very happy, if you are trying to buy a home then you might be kicking yourself that you didn’t buy when the availability and the prices were within your reach.

 If you have ever though about buying a home, you might look hard at doing it soon.  Home prices are low and inventories are high, meaning you have a great selection to choose from.  Interest rates are currently at historic lows.  There is up to $8,000 tax credit.  When any of these things change it could cost you substantially more to buy a home.

Below is a TEN year history of home sales for Snohomish, King Pierce and Kitsap County collectively

While all the news medias would want you to believe that all is doom and gloom, we have outsold last year and are about average for the decade.

source: NWMLS

I have few more doubts: In case of the whole EMI deduction allowed or not, is there any specific limits for the declaration of Principal and/or Interest amount paid per annum ? Is the HRA claim possible even when the home loan EMI declaration is done ? For an annual gross of 14.5 lakhs with NO salary breakup and 31k home loan EMI { 18.5k HRA claimed,now in rental, new home pjt yet to finish } , how to reduce the 30k Income Tax paid ? Can anyone suggest ? I am in great confusion ‘coz i heard the interest part of the EMI cant be deducted for IT purposes. Is it so ? Please help… Also, i heard, there is a possibility to reduce Income Tax by gifting 1 to 2 lakhs to one’s each parent. Is that true ? In that case, is the gift to be made as a notary settlement or agreement etc? will there be any charges paid for that like service tax etc… Does that gifted amount itself will be tax-exempted ? [ deducted from one's gross income when income tax is calculated ] OR the income from investments made out of THAT gifted amount will alone be Tax-exempted ?

Yes you can claim loan deduction as well as HRA if and only if you have taken another house on rent due to your place of work. Means you are not able to live in your own home because you have to work far away and it it not possible to come and go on daily basis. You are eligible for deduction of maximum Rs. 100,000 (principal repayment) under section 80 C. You are also eligible for deduction of maximum Rs. 150,000 on interest paid during the year. The gift part is not allowed as deduction for you. You can gift to your parents for any amount and that will not be taxable income for your parents. You have to pay tax on your income as per normal rule and out of that income, after paying tax on it, you can gift to your parents. The gifted money will not be taxable income for your parents.

I have purchased apartment in City A in Jan -08 and Complete home loan is disbursed to builder in Feb-08. I have paid 15000 as Pre EMI in Month on Feb-08 and Regular EMI of 31000 in the month of March-08. This property is in construction and hopfuly I will get possession in Jan-09. Currently I am staying city B in rented house for that I have paid 75000 rent for the year 2007-08. 1> So Can claim for Pre EMI and Regular EMI amount for IT return for financial year 2007-08 ? 2> As wel as can I claim for Hosue rent which I have already paid for financial year 2007-08 ?
You can only claim the Housing Loan interest after the completion of house. till then the interest payment made by you will get accumulated and after the completion you will get the deduction 1/5 each year in 5 years. For the period your house is under construction, you can claim HRA benefit for the rent paid by you.