Your Beach Specialist
Michele Pompa
December 2021

Daily News And Advice
Today's Feature Stories

How Lenders View Tip Income

When tips play a big part in someone’s take-home pay, it can be used to help qualify for a mortgage. The kicker is that many don’t report all of the tip income or simply lose track of the amount. Tips are issued to the recipient directly either in cash or added onto the credit slip. Either way, it must be accounted for. 

It’s the recipients’ job to not only keep track of the daily amounts as well as report the income when filing income tax returns. And here is where things can sometimes get a little off track. Most such jobs pay a minimum wage and it’s the tip income that really matters. But when it comes time to qualify for a home loan, that tip income must be accounted for.  Accounting for tips means depositing the funds into a bank account on a regular basis. It also means keeping a personal, written record of tip income. 

When someone gets paid from their employer, it’s common for income to be paid out on the 1st and 15th. The bank account statements will then show these deposits from the employer using direct pay. But what the employer won’t show is how much tip income was distributed. In fact, the employer might have a general idea but there isn’t any way for the employer to get an exact number on the amount of tips. It’s important to also deposit tips in a regular manner. Someone might deposit last week’s tip income on a Monday, for example. Weekly, consistent deposits that are verified by bank statements and even deposit slips may be counted.

However, as we recently mentioned, all income must have a history and tip income is no different. Income in general must be documented to having been received for at least the last two years. This provides the lender with enough confidence the income will continue well into the future, typically for at least three years. Verifying a consistent, two year history helps lenders make this determination. Tip income must also be shown being received for at least two years. The income reported to the IRS is the amount of tip income lenders will use when qualifying. That’s the final verification lenders need in order to use tip income when qualifying for a mortgage and probably the most important. If this income doesn’t show up on your tax returns, that’s going to be a problem. Even if you keep solid personal records.

If you’re planning on buying a home in the future and your tips play an important part, make sure we speak together about how to document this important piece of your financial profile before you get too much further. In essence, it’s just like any other income as it relates to how it can be verified. Your W2s from the last two years will be needed but they will only report your hourly wages from the employer. It’s up to you to take the next step and report this income on your federal tax returns each year. If you’ve done all these things in advance, you can certainly use tip income to help qualify. It’s a bit more paperwork to document these transactions but in reality it’s not really that big of a deal. But it must be done.


Despite Home Price Surge, Cooling May Be On the Horizon

The median home price in the United States just surpassed $400,000 for the first time at the end of October, according to the St. Louis Federal Reserve.

The median home price in the third quarter of this year went up to $404,700. That represented a 13% jump from the third quarter of 2020. At that time, the median sales price was $358,700.

Factors contributing to the eye-popping number include a lack of inventory and high demand.

Goldman Sachs recently released an analysis indicating they see home prices rising another 16% by the end of next year. Economist Jan Hatzius said the housing shortage might last the longest compared to all other pandemic-related shortages. Hatzius said currently Goldman doesn’t see a crash being very likely.

Housing Shortages

Throughout the pandemic, there have been low mortgage rates. Other factors are part of the mix, like people moving from urban areas to suburbs and younger people buying their first homes.

The latest forecast from Fannie Mae indicates an expected rise of 7.9% in home prices between Q4 2021 and Q4 2022.

Morgan Stanley released a recent note saying they believe the U.S. needs as many as 1.5 million more homes to regain a sense of normalcy. The availability of real estate is three years behind based on their analysis.

Strategists at Morgan Stanley wrote the housing shortage is meaningfully contributing to the record real estate appreciation currently being seen. While it’s unlikely based on current trends there will be an excess supply any time soon, the contraction pace of the supply does appear to be slowing.

Could the Housing Market Be Headed Toward a Cooldown?

While prices are likely going to keep going up, with inventory remaining behind, some signals that a slowdown at least in monthly price growth could be on the horizon. Many housing experts say they expect price growth to start to slow somewhat through the end of 2021. 2022 might see more significant pricing slowdowns.

While housing inflation seems to be stalling a bit or plateauing, it remains five times higher than before the pandemic.

Supply Chain Bottlenecks

The limited supply of homes is complex, and another issue in the industry is the supply chain bottlenecks affecting builders. They’re having a hard time keeping up with the items they need, which is also paired with a labor shortage.

Increasing Mortgage Rates

The average mortgage rate for a 30-year fixed-rate loan did go up ten basis points in August to 2.87%. There aren’t signs that the trend is going to slow or reverse any time soon, and that does hamper buyers’ ability to raise their offers in bidding wars.

Seeing what’s going on in the market, many homeowners are holding onto their properties rather than selling, with the worry they wouldn’t be able to buy something new. That’s putting a further squeeze on inventory.

So, what does all this mean? Home prices are likely to remain elevated for the foreseeable future, and inventory will stay limited as well. However, there might be at least some slowdown in how quickly home prices are accelerating.


How Does Inflation Affect Home Prices and Real Estate?

If you’ve followed the news lately, you’ve probably seen quite a bit about inflation. In September, there was another surge in consumer prices, which matched a 13-year high. The price increase was the largest since 2008, up 5.4% from a year ago.

Some of the categories seeing the most significant increases included new cars, gas, food and restaurants meals. Core inflation was up 0.2% in September and there was a 4% increase from last year.

COVID-19 has contributed to some of the issues because for example, the pandemic continues to close factories in Asia and slow operations at U.S. ports. There are significant bottlenecks in the supply chain and high demand, meaning inflation will stay up for a while.

So, how does all of this affect the real estate market?

The Inventory Issue

Interest rates have been kept low for so long it’s created a bubble for everything and not just the housing market. There’s also inflationary pressure on the housing market because of limited inventory. Limited inventory stems from a myriad of problems in the industry.

First, many homeowners aren’t putting their houses on the market. This is due to factors like lockdowns, but also the fear they won’t be able to find a new one to buy.

There are construction delays due to supply chain bottlenecks as well.

Buyers are often having to put in bids well above ask to get properties, creating a frustrating situation, to say the least.

Other Inflationary Effects On Real Estate

Along with the situations above, there are some other ways inflation can influence how much you pay for a home.

First, inflation is a reference to a rise in the price of everyday goods. Those everyday goods are used to build homes. If the price of things like lumber and appliances go up, then the builder will pass those additional costs onto the buyer in the form of higher prices.

In some cases, however, inflation can have oppositional effects on real estate. If inflation rises, then theoretically, money should become more expensive to borrow. People borrow less of it, so there are fewer home purchases and that can lead to lower economic growth. Right now, that’s not happening however, because as mentioned, interest rates remain low.

When the Central Bank increases the money supply into the economy, which is a primary driver of inflation, home prices tend to automatically go up as a result.

Real Estate Can Protect You Against Inflation

While real estate can be negatively affected by inflation in the form of higher prices, it can also protect you from its effects.

As home prices go up over time, you’re lowering the loan-to-value of your debt. You’re simultaneously increasing your equity, but your fixed-rate mortgage payments will stay the same.

If you’re a real estate investor earning income from rental properties, then you’re likely going to be able to charge higher rent when inflation is up. You can adjust the rent while the mortgage stays the same.

Finally, in general, home prices do also tend to go up steadily over time. The homes that hit bottom prices during the real estate bubble burst of 2008 were back up to pre-crash prices in less than ten years in most cases.

The relationship between housing and inflation can go in both directions. If you’re a buyer right now, inflation isn’t good news, but if you own a home, it can be one of the best ways to protect yourself against rising prices.


10 Tips for Creating a Calmer, More Peaceful Home

Your home should be your sanctuary, but sometimes it’s hard to brush off the stress of the day and sink into the serenity. That's especially true if your home is more chaos than calm. Use these tips to create a space that’s soothing, so, no matter what the day holds, you always have an inviting place to come home to.

Add some greenery

Studies have shown that plants can make your home feel calmer and ease anxiety. Plants like jasmine and English ivy can improve sleep, lavender and rosemary can lower stress, and several other plants have been shown to improve air quality so you breathe easier.

Hide the electronics

“Nobody wants to stare at a tangle of cords,” said Houzz. “Thankfully, we have more options than ever for keeping our tech devices hidden away. When possible, choose smaller, wireless devices that look less obtrusive even when left out in the open. Tie up cords in a media center so they are not visible, and dedicate a single drawer to storing all of your chargers, power cords and small tech devices when they’re not in use.”

Get a dog

Or a cat, a bird, or a turtle, for that matter. Yes, having a pet can mean more noise and more mess. But, there are all kinds of studies that show that having a pet lowers stress. “Researchers found that pet-owning patients with high blood pressure could keep their blood pressure lower during times of mental stress than patients without pets,” said “Another study shows that pet owners may also have increased odds of surviving for at least a year after having a heart attack.”

Clear the clutter

Going all Marie Kondo on your home can have surprising effects on your mental state. “Clutter can play a significant role in how we feel about our homes, our workplaces, and ourselves,” said psychologist Sherrie Bourg Carter in Psychology Today. “Messy homes and work spaces leave us feeling anxious, helpless, and overwhelmed.”

Tone down the harsh colors

There’s something to be said for going bold, but soft colors can bring on a calming feeling. If you want a deeper color, consider shades of blues and greens—two colors that are known to be more serene than, say bright yellow, orange, or red.

Clean up your entryway

It’s the first place guests see, and while you probably don’t pass by or through your front entry all that often if you park in the garage, it may not feel as welcoming as you’d like when you do.

Soften the lighting

Harsh overhead lighting can make you feel like you’re being interrogated, and can also be hard on your eyes. If you need to keep it because the space will be too dark otherwise, a dimmer can at least give you some control over just how bright it is, and allow you to create a mood with lower lighting as needed.

Limit the patterns

“Opt for solids and subtle patterns,” said Houzz. “Busy patterns have their place, but if you’re aiming for calm, then solid fabrics are your friends. Don’t be afraid to include subtle patterns, though: herringbone, tone-on-tone stripes, and tiny dots can add textural interest without competing for attention.”

Buy some fresh flowers

According to a study by Rutgers, “The presence of flowers trigger happy emotions, heightens feelings of life satisfaction and affects social behavior in a positive way far beyond what was originally believed.”

Make your master bedroom a zen zone

Getting good rest is key, and there are several ways you can create a soothing space. Keeping the colors serene is key, and so is a good mattress. Loading the bed up with soft textures can also help. “The sensation of touch is often overlooked, but a powerful way to unwind,” said


What You Need to Know Before You Co-Sign on Someone’s Mortgage

You just did a good thing. You agreed to co-sign on a mortgage. Especially for first time buyers, qualifying on their own can sometimes be a challenge, especially for those who are having difficulty qualifying due to debt-to-income ratios, coming up with funds for a down payment, having some credit issues or having their very first job right out of school. 

There are indeed issues that buyers need to address. And when someone does indeed need some help, a co-signer on a mortgage FULL STORY->

Having HOA Neighbor Knowledge

One of any homeowner association's challenges is helping neighbors "make nice". The board is frequently called on to mediate disputes and fine neighbors for doing bad things. Actually, it's not the board's job and in most cases, except those that directly impact the common area, these "opportunities" should be bounced back to the complainer to handle.

What exactly is a "good" neighbor? To be one, you don't need to be friends or hang out together. Being a good neighbor is an attitude. FULL STORY->

5 Rules of Contemporary Home Design

There’s a certain kind of satisfaction that can be achieved from looking at photos of homes before and after they’ve been redecorated and revamped. It’s like getting to quietly cheer for the lucky homeowner from the comforts of the other side of the screen as you gawk at each well-lit and expertly-composed photo. You watch the drear and drab of an old, dark living room transform into high ceilings, sleek and smooth lines, and floor-to-ceiling windows; you marvel as the tiredness of a FULL STORY->

What’s the Big Deal About Branding?

There are very few things I am as passionate about in business as branding. Brand Development is as critical in business as determining your business name, mission statement, your entity (such as S Corp, LLC, etc), and your processes.

However, there seems to be confusion about what your brand really is. Some think it is solely about the client experience – the feeling the client gets once the transaction is closed, the service you provide, etc. In my opinion, that works FULL STORY->

November Real Estate Roundup

Freddie Mac's results of its Primary Mortgage Market Survey® shows that "

Despite the noise around the economy, inflation, and monetary policy, mortgage rate volatility has been low. For most of 2021, mortgage rates have stayed within half a percentage point, which is a smaller range than in past years."

• 30-year fixed-rate mortgage (FRM) averaged 3.1 percent with an average 0.7 points for the week ending November 24th, 2021, down from last month FULL STORY->

Mortgage Rates
Averages as of December 2021:

30 yr. fixed: 3.1%
15 yr. fixed: 2.42%
5/1 yr. adj: 2.47%

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Michele Pompa, Realtor,e-PRO,ABR,SSRS
Cell: 443-497-1313
Coldwell Banker
Residential Brokerage

6405 Coastal Hwy.
Ocean City, MD 21842

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