I’m struggling with the idea of selling a rental property that has both a high monthly maintenance fee and a high mortgage rate. The costs to keep this house are currently higher than the monthly income it generates.
I recently refinanced in order to pull out $100,000, so now I owe $420,000 on the property, which is worth approximately $750,000.
My recent refinancing increased my mortgage rate from 5.14% to 7.9%, essentially eating up all my cash flow.
I’m on the fence. Should I sell, or should I refinance for a better rate to free up cash flow?
Losing Money Fast
‘The Big Move’ is a MarketWatch column looking at the ins and outs of real estate, from navigating the search for a new home to applying for a mortgage.
Do you have a question about buying or selling a home? Do you want to know where your next move should be? Email Aarthi Swaminathan at TheBigMove@marketwatch.com.
Dear Losing,
The fact that you’re bleeding money from this rental is not good. You need to either bring down your interest rate or raise rents so you can turn a profit in order to make it a worthwhile investment. But keep in mind that many people are sitting on the sidelines waiting for interest rates to fall, so you might not get your desired price if you decide to sell.
Your mortgage rate is likely the biggest reason your monthly costs have jumped so much. Rates are expected to fall to around 6% or lower by the end of the year. You could refinance then, but do the math to see if it’s worth it.
You’ve already been through the wringer with refinancing, and you likely paid various application, appraisal, attorney and origination fees — in addition to closing costs — to extract that $100,000. All of that is expensive, and now you’re thinking of going through it again.
Even if you refinance again at a lower rate, would that be enough to make a profit? Were you able to turn a profit on that property when rates were at 5%? If not, would you be able to raise rents for your current tenants or perhaps find new tenants who would be able to pay more? And is the house in need of repairs or upgrades?
Unless you can make a profit on the property in the next couple of years, there’s little reason for you to hold onto it, unless you believe that it’s in an area that will experience a significant appreciation in value — you’d want to see appreciation of 20% or more, given the fees you would have to pay upon selling.
Part of your retirement plan
At the same time, a second property is nearly always a good investment. Do you think there will be considerable demand for the rental in the medium to long term? Is it in an area where you might be able to find tenants who would pay enough to cover your costs in the near term so you can at least break even? If so, it’s a good idea to try to hold onto the property, especially if it’s part of your retirement plan.
Provided that you have enough savings to help you get through this current era of 7% rates, and you have the money to refinance down the road to get your monthly costs down to a level where you can have a healthier cash flow, it may be worth keeping the home.
Selling isn’t an easy or simple decision. Because this is not your primary home, you’ll need to factor in the capital-gains taxes you would have to pay, along with 6% in real-estate commissions.
If you do decide to sell at some point in the future, you could roll that money into another like-kind property in order to qualify for a 1031 exemption, in addition to a lower rate.
The bottom line: You need to think like a real-estate investor and leave emotion out of this decision. If the property is not making money or it’s not going to at least break even at some point, you have your answer. But keep in mind that the real-estate market can surprise on the upside and that once you sell the home, you will not be able to take back that decision.
By emailing your questions, you agree to having them published anonymously on MarketWatch. By submitting your story to Dow Jones & Company, the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.
The numbers: Home prices in the 20 biggest U.S. metros rose for the 11th month in a row and hit a record high amid a persistent shortage of resale homes for sale.
The S&P CoreLogic Case-Shiller 20-city house price index rose 0.2% in December compared to the previous month.
Home prices in the 20 major U.S. metro markets were up 6.1% in the last 12 months ending in December.
A broader measure of home prices, the national index, rose 0.2% in December and was also up 5.5% over the past year. All numbers are seasonally adjusted.
The 20-city and the national index are at an all-time high.
Key details: San Diego posted the biggest year-over-year home-price gains in December. Prices were up 8.8%.
All 20 major markets reported yearly gains for the first time in 2023, S&P said.
Home prices rose the slowest in Portland, increasing by 0.3%.
Cities | Change from last year |
Atlanta | 6.3% |
Boston | 7.2% |
Charlotte | 8% |
Chicago | 8.1% |
Cleveland | 7.4% |
Dallas | 2.1% |
Denver | 2.3% |
Detroit | 8.3% |
Las Vegas | 4.2% |
Los Angeles | 8.3% |
Miami | 7.8% |
Minneapolis | 2.9% |
New York | 7.6% |
Phoenix | 3.8% |
Portland | 0.3% |
San Diego | 8.8% |
San Francisco | 3.2% |
Seattle | 3% |
Tampa | 4.1% |
Washington | 5.1% |
Composite-20 | 6.1% |
A separate report from the Federal Housing Finance Agency also showed home prices rose 0.1% in December from the last month, and were up 6.6% in the past year.
The FHA also noted that the housing market has experienced annual home price growth every quarter since the start of 2012.
The median price of a resale home was $382,600 in December 2023, and a newly built home was $413,200.
Big picture: Even though rates went to 8% in 2023 and dried up demand, that did not push down home prices significantly, per the Case-Shiller index. However early analysis of the data indicates that some markets are seeing home price declines.
But with the 30-year dropping below 7% in December, home prices may see a boost as demand picks up. And with a persistent and severe shortage of homes for sale, home prices could be pressured upwards again.
What S&P said: “Looking back at the year, 2023 appears to have exceeded average annual home price gains over the past 35 years,” Brian D. Luke, head of commodities, real & digital assets at S&P Dow Jones Indices, said in a statement.
“While we are not experiencing the double-digit gains seen in the previous two years, above-trend growth should be well received considering the rising costs of financing home mortgages,” he added.
And the company said it was able to see the early impact of higher rates on home prices. “Increased financing costs appeared to precipitate home price declines in the fourth quarter, as 15 markets saw lower values compared to September,” Luke noted.
The B.C. government has announced plans to introduce a tax of up to 20 per cent on profits made when properties are sold within two years of their purchase.
The 20 per cent rate will be in place for a year after purchase and will slide to zero between 366 and 730 days after the acquisition.
B.C. Finance Minister Katrine Conroy announced the tax as one of the province’s latest tools to try to curb speculation over housing in a province where many struggle to afford appropriate shelter.
“Prices went up as governments stepped back and speculators moved in,” said Conroy during her speech presenting her latest budget in the legislature.
“That’s why we’re bringing in a home-flipping tax as our latest measure to crack down on bad actors.”
The tax is one of 20 pieces of legislation the government plans to introduce this session, meaning it will need to be passed at some point over the next three months before becoming law.
The plan is to implement it for properties sold on or after Jan. 1, 2025. It will also apply to properties purchased before then.
Conroy’s 2024-25 budget forecasts that the tax, once in place, would result in an additional $44 million in revenue in the 2025-26 fiscal year.
That revenue will go directly to building affordable housing throughout the province, she said.
Sellers would be taxed around 10 per cent after owning a home for a year and a half, with the tax lifted after ownership for two years.
The tax will apply to income from the sale of properties with a housing unit and properties zoned for residential use. It also applies to income made from condo assignments.
It does not apply to land or portions of land used for non-residential purposes, according to the government’s budget documents.
Other exemptions under the tax include life circumstances such as separation, divorce, death, disability or illness, relocation for work, involuntary job loss, change in household membership, personal safety or insolvency.
“The purpose of this tax is to support housing supply, not impede it,” reads the government’s budget documents.
“Exemptions will be provided for those who add to the housing supply or engage in construction and real estate development.”
The tax is to be paid in addition to any federal or other provincial income taxes incurred from the sale of property.
Alex Hemingway, a senior economist with the Canadian Centre for Policy Alternatives, said although the tax is another tool to try and address speculation, he’s not sure how successful it will be.
“I think a flipping tax can take a little bit of air out of the tires in terms of speculation, but it’s not really getting at the root of the housing crisis, which is a shortage of housing overall and a shortage of non-market housing in particular.”
He also said the tax could inadvertently drive down home sales and transactions, siphoning tax revenue away from property transfers.
First-time homebuyer credit
The budget also introduced expanded property transfer tax exemptions, increasing the First Time Homebuyers Program threshold up to $500,000 on the purchase of a home worth up to $835,000.
The province said the move would result in savings of up to $8,000 per purchase and would double the number of buyers that will benefit to approximately 14,500.
The province will also waive the property transfer tax for eligible purpose-built rental buildings that have four or more units until 2030.
There are 500 reasons to fall in love with a new home, at a range of Dandara’s developments across Bedfordshire, Buckinghamshire and Leicestershire.
The independent housebuilder is offering a £500 Virgin Experience voucher for a hotel and spa stay with dinner for those who reserve a Dandara home at Saxon Park, Biddenham, Abbots Place, Wavendon and The Meadows, Wymeswold, until the 18th of February.
Rachel Lindop, Head of Sales at Dandara Northern Home Counties, said: “While you enjoy the romantic whirlwind of falling in love with your new home, we want to make sure you also cherish your loved ones this Valentine’s Day.
Moving home can be a busy time, so we are treating our customers who purchase this February to a visit to one of the gorgeous Virgin Experience spas and hotels to celebrate Valentine’s Day, and of course, celebrate moving into their new Dandara home.”
The offer is available throughout all developments across Dandara’s Northern Home Counties region. Buyers can also benefit from other incentives, such as tailor-made packages, and deposit and Stamp Duty contribution.
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In Wymeswold, The Meadows is home to The Goodwood, a four-bedroom detached home with a single garage and driveway parking starting at £510,000. With spacious living and dining spaces downstairs and plenty of storage space throughout, buyers can also receive a £15,000 tailor-made package upon purchase.
Further south, Buckinghamshire buyers will fall head over heels at Abbots Place, located in Wavendon, just outside of Milton Keynes. Here, buyers can enjoy further offers, such as reserving The Cranbourne, Home 31 before February 29th to save over £40,000.
Customers will receive a 5% deposit contribution, a quartz kitchen and utility worktop plus a shower package in their purchase. The three-storey Cranbourne offers flexibility and practicality across its five double bedrooms, four W.Cs/bathrooms and plenty of storage, including a single garage and is available for £679,950.
Finally, those looking to settle down in beautiful Bedfordshire can avail themselves of the convenience of Biddenham’s Saxon Park. The Frogmore is a homely three-bedroom detached home which starts at £434,995. The stylish open-plan kitchen dining room is the perfect place to entertain loved ones or cosy up for a romantic dinner for two.
Buyers who reserve The Frogmore, Home 237 before February 29th can benefit from a £10,000 Tailor-Made Package, available on a range of incentives including Stamp Duty contribution, deposit contribution, flooring to the rear garden, kitchen upgrades and more.
For more information about any of the homes and offers currently available at Dandara, please visit https://www.dandara.com/new-home-counties/
House prices in Northern Ireland increased by 2.9 per cent to reach an average of £207,010 (€242,534) in the final quarter of last year, according to research from Ulster University.
The findings from the latest Northern Ireland Quarterly House Price Index show prices remained stable and continued to edge higher throughout 2023. This trend continued in the last three months of 2023 as the average house price increased by 0.4 per cent.
The research also shows signs of slowing market activity with transactions at their lowest level over the year, decreasing 26 per cent on the previous quarter.
“While the seasonal effects of Christmas and New Year traditionally see a slowing of market activity, a slight dip in buyer confidence remained in the last quarter of 2023 as the uncertainty of interest rates acted as a key factor for mortgage holders and prospective buyers alike,” the report noted.
“Encouragingly, the recent decision to keep the interest rate stable at 5.25 per cent is seemingly paving the way for more attractive mortgage deals.”
The data also shows minor declines in the cost of fixed, variable, and tracker rate mortgages during the final quarter of the year, indicating this trend could continue softening rates throughout 2024.
Vision Capital vs IRES REIT: trouble brewing at Ireland’s largest private landlord
“Lenders are motivated to build their loan books and attract customers, meaning that new borrowers or those remortgaging during 2024 may benefit from appealing deals and rates available,” the report said.
Separately, Northern Ireland has been named as the fastest-growing region in the UK for newly registered companies in 2023 in a new index from Ulster Bank and Beauhurst.
The boom in the number of start-ups was noted in the New Startup Index which found that Northern Ireland gained 14,000 new companies in 2023, which was a 59 per cent increase on 2022.
Belfast was hailed as the fastest-growing council area in the UK by number of newly registered companies, with a 123 per cent increase in the number of new businesses.
Causeway Coast and Glens, and Lisburn and Castlereagh also made the top 10 by growth in the number of companies incorporated, with the number of new businesses growing by 61 per cent and 54 per cent respectively since 2022.
The retail sector was responsible for the largest rise in the number of new businesses in Northern Ireland with 3,605 new companies set up.
Mark Crimmins, head of Ulster Bank, said: “These new ventures are predominantly small businesses, owned and run by local people, which will play an important role in supporting the growth of Northern Ireland’s economy.”
The rise in new businesses in Northern Ireland is a trend that is replicated across the UK. Some 900,000 new companies were incorporated in the UK in 2023, making it a record year for new businesses.
At a UK-level, the growth in female-founded businesses also continues to increase year on year, with a record 164,000 companies incorporated by women in 2023, up 4 per cent on 2022 and taking growth in the five years between 2019 and 2023 to 26 per cent overall.
New York Community Bancorp Inc. has been looking to shed problem commercial real estate from its books after last week reporting a surprising $185 million loss relating to a pair of loans as part of its fourth-quarter earnings results.
The lender has offered investors a chance to bid on a $22.4 million mortgage backed by three five-story walk-up apartment buildings in Washington Heights, a neighborhood in northern Manhattan, according to details of the offering viewed by MarketWatch.
The debt backs mostly rent-regulated apartments and affiliated mixed-use space. The mortgage matured in early January, with the full amount of the debt now due, plus interest at a 20% default rate, according to the offering.
Other landlords in the neighborhood who are subject to New York City’s rent-regulation laws, which were strengthened in 2019, have seen property values tumble by an estimated 50%, according to Bloomberg News.
New York Community Bancorp
NYCB
didn’t respond to requests for comment for this article.
Efforts by the bank to tackle its exposure to problem real-estate loans come as its stock has dropped by more than 60% so far this year.
The lender has a large exposure to rent-regulated multifamily properties in New York City, about a $1.8 billion office-building exposure in the city and about $250 million to $300 million in maturities in the next few years, according to Deutsche Bank researchers.
Pressures facing the bank are reigniting fears about regional banks and their commercial real-estate exposure. Treasury Secretary Janet Yellen told lawmakers on Tuesday that she was concerned about U.S. commercial real estate, saying that some institutions could be “quite stressed,” while also saying the challenge looks manageable.
Landlords have been reeling from slumping property prices and higher borrowing costs since the Federal Reserve in 2022 began dramatically raising interest rates to quell high inflation.
Many regional banks have responded by trying to quietly shed exposure to problem commercial real estate. That activity has picked up since the collapse of Silicon Valley Bank and Signature Bank last March and JPMorgan Chase & Co.’s
JPM
takeover of First Republic Bank, which deeply unsettled markets.
Late Tuesday, Moody’s Investors Service downgraded New York Community Bancorp’s credit by two notches into speculative-grade or “junk” status.
“We took decisive actions to fortify our balance sheet and strengthen our risk management processes during the fourth quarter,” Thomas Cangemi, New York Community Bancorp’s president and chief executive officer, said in a statement following the downgrade.
Cangemi also said that the bank has ample liquidity and has been growing its deposits and that the downgrade wasn’t expected to have a material impact on the lender’s contractual arrangements.
Sales of assets, even at a discount, can sometimes help banks get ahead of greater problems facing the industry, loan buyers said. But they also expect commercial-real-estate lenders to endure a challenging few years, especially as a wall of old debt comes due at a time of higher interest rates.
See: ‘No one is throwing good money after bad.’ Why 2024 looks like trouble for commercial real estate.
Pulse Consult has announced that it has acquired Tandem Projects as part of its growth strategy to further strengthen its offering to the West Midlands and South West markets.
All Tandem employees have been retained and Tandem director, Graham Black, has joined the Pulse board.
The team will join the Pulse Birmingham office which has recently relocated to Grade II listed Louisa Ryland House in the heart of Birmingham’s Colmore Business District.
Pulse’s ambitious strategic growth plans saw a 32% increase in headcount in 2023, including augmenting its senior leadership team with a head of finance and head of marketing, and reported a 22% increase in turnover for the last financial year.
At the end of last year, Pulse was awarded Gold status from Investors in People in recognition of its commitment to its employee connection, engagement, wellbeing and organisational culture.
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Tandem, established in 2012 and based in Warwickshire, offers project management and quantity surveying services and, combined with its depth of knowledge and experience in a number of sectors, will bolster Pulse’s proposition.
Ian Carey, managing director at Pulse, said: “Having witnessed first-hand how the Tandem team collaborate with each other and their clients, it’s clear that we share the same ethos. Not only does their offering complement our own but, more importantly, our values are aligned too. We’re delighted to welcome Graham and his team to Pulse where, together, we’ll be able to offer even more opportunities for our clients and people.”
Graham Black, director at Tandem, said: “It’s people that define a business and build projects – by listening, collaborating and supporting each other to get the job done. So when we were considering what next for Tandem, we were always going to have the best interests of our team and clients at the heart of our decision making. We’re excited to become part of the Pulse journey and strengthen its existing team so we can deliver even more value for our clients and people.”
The numbers: Home prices in the 20 biggest U.S. metros rose for the tenth month in a row and hit a record high due to a low number of listed homes.
The S&P CoreLogic Case-Shiller 20-city house price index rose 0.1% in November compared to the previous month.
Home prices in the 20 major U.S. metro markets were up 5.4% in the last 12 months ending in November.
A broader measure of home prices, the national index, rose 0.2% in November and was also up 5.1% over the past year. All numbers are seasonally adjusted.
The 20-city and the national index are at an all-time high.
Key details: Detroit posted the biggest year-over-year home-price gains in November. Prices were up 8.2%. The city was the best performing real-estate market for the third month in a row.
Portland was the only city which saw home prices fall in November.
Cities | Change from last year |
Atlanta | 5.9% |
Boston | 7.1% |
Charlotte | 7% |
Chicago | 7% |
Cleveland | 7.4% |
Dallas | 1.7% |
Denver | 1.5% |
Detroit | 8.2% |
Las Vegas | 2.1% |
Los Angeles | 7.2% |
Miami | 7.2% |
Minneapolis | 2.7% |
New York | 7.4% |
Phoenix | 2.5% |
Portland | -0.7% |
San Diego | 8% |
San Francisco | 2% |
Seattle | 1.6% |
Tampa | 3.4% |
Washington | 4.7% |
Composite-20 | 5.4% |
A separate report from the Federal Housing Finance Agency also showed home prices rose 0.3% in November from the last month, and were up 6.6% in the past year.
Big picture: Even though mortgage rates were elevated between October and November — which sapped home-buying demand — the persistent and severe lack of supply of homes for sale has resulted in prices rising yet again.
With an imbalance between demand from home buyers and a reluctance among homeowners to sell and give up their ultra-low rate, the dynamic is likely to persist.
Particularly since rates have fallen since November and demand has ticked up, home prices will likely continue to march upwards into the new year.
What S&P said: “November’s year-over-year gain saw the largest growth in U.S. home prices in 2023, with our National Composite rising 5.1%,” Brian D. Luke, head of commodities, real and digital assets at S&P DJI, said in a statement.
Most markets are seeing home prices grow, he added. “The days of markets in the South rising double digits with markets in the Midwest remaining flat are over,” Luke said.
And with mortgage rates falling since November, that could “support further annual gains in home prices,” he added.
Looking ahead: “With mortgage rates now lower and spring home buying demand already lurking, home prices will continue to rise,” Selma Hepp, chief economist at CoreLogic, said in a statement.
That’s “especially considering the outsized pent-up demand for homes coming from young buyers, those who have been waiting for lower rates, and huge influx of immigrants over the last couple of years,” she added.
Market reaction: Stocks
DJIA
SPX
were up in early trading on Tuesday. The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
was over 4%.
New home sales rose 4% in 2023—even as high mortgage rates and low supply buffeted the broader housing market.
New homes in December were sold at a seasonally adjusted annual rate of 664,000, up 8% from November’s upwardly revised rate of 615,000, according to Census data released Thursday. Economists had expected sales at a seasonally adjusted annual rate of 645,000, according to FactSet.
The…
New home sales rose 4% in 2023—even as high mortgage rates and low supply buffeted the broader housing market.
New homes in December were sold at a seasonally adjusted annual rate of 664,000, up 8% from November’s upwardly revised rate of 615,000, according to Census data released Thursday. Economists had expected sales at a seasonally adjusted annual rate of 645,000, according to FactSet.
The data caps out an unusual year for the housing market. Sales of previously owned homes, which make up the bulk of all house sales, fell 19% to 4.09 million, the National Association of Realtors said earlier this month—the lowest annual total in nearly 30 years. Sales of previously owned homes were hampered by rising mortgage rates and relatively low supply.
New home sales, meanwhile, expanded: there were 668,000 contracts signed to purchase new homes in 2023, the Census data show, up 4.2% from 2022’s levels. It was the first year-over-year expansion in new home sales since 2020, when they jumped as mortgage rates fell to historic lows and newly remote workers sought more space.
It’s not that builders were immune to broader housing market headwinds. Rather, companies were able to sell homes by offering incentives such as mortgage rate buydowns. Of the builders surveyed in January by the National Association of Home Builders, 62% offered sales incentives, a common theme from 2023 that has continued into the new year. While offering incentives can boost sales, it’s also a drag on profit margins.
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The picture for housing looks brighter in 2024.
said in its latest forecast that it expects mortgage rates to fall below 6% by the end of the year.
Write to Shaina Mishkin at shaina.mishkin@dowjones.com