2025 Real Estate Market Predictions for Southern Frederick County

As we enter the new year, it's time to forecast the real estate market for 2025. While predictions often change within months, evaluating recent trends and combining national and local insights can provide a
useful outlook for Southern Frederick County, Maryland (SFC).

My Prediction

Southern Frederick Md. Local Area for Prediction

For early 2025, I anticipate minimal changes from 2024. Inventory levels, consumer debt, and interest rates are likely to remain stable, keeping home prices relatively unchanged. If mortgage rates decrease by a point, pent-up demand could lead to a strong first half of the year. However, significant positive changes may not occur until late 2025 or 2026, as the new administration's policies take effect. These changes, whether through legislation or executive orders, will take time to impact the economy, if they help at all.

Key Factors

1. Mortgage Rates: Predictions suggest rates will stay above 6.5% in 2025. For market gains, rates need to drop below 5.75%. For more details, see my post on Decoding Mortgage Rates.
2. Low Housing Inventory: Inventory in SFC has decreased by 42% since 2020, with no signs of improvement. Telecommuting trends may reverse, potentially affecting inventory levels. The new administration's policies will also limit telecommuting significantly, impacting the market. For more details, see my post on Understanding Low Housing Inventory
3.  Consumer Debt: Credit card debt has surged 32% since May 2021, exceeding $1 trillion.

   

   Consumer Debt

   Delinquency rates are also skyrocketing. Debt affects mortgage qualifications as lenders use the debt-to-income ratio to set borrowing limits. Rising delinquency rates show this problem is not getting better soon. The government is considering temporary limits on credit card interest rates to reduce consumer debt, but that is wishful thinking for now.
4. New Administration Policies: The new administration’s policies are starting to be implemented, with the aim to boost the U.S. economy. Key areas include:
• Housing: A few new federal employees may seek housing in SFC, potentially affecting the market. However, most of them will reside in Montgomery County and Northern Virginia.

o   Deportations of undocumented immigrants could significantly impact the housing market. While precise figures for Frederick County are unavailable, the potential effects are noteworthy. Forced deportations may increase the availability of rental properties, easing that segment of the market. However, properties owned by undocumented individuals could present challenges. Although I am not a lawyer, it is likely that these individuals would retain ownership but must continue making mortgage payments to avoid foreclosure. The resolution of these issues will be interesting to observe.

Self-deportation might result in a more orderly process, allowing individuals to manage their exit more effectively.

• Economic Improvements: Policies on tax cuts, energy independence, deregulation, and government efficiency have the potential to impact the market, though their effects will take time to materialize.

 

Actions to Consider

Timing the market is challenging and not recommended. If you are planning on selling and/or buying soon, contact me now at 301-873-2106. We can get the ball rolling.

If you're planning a move, start preparing now. Buyers should focus on reducing debt, improving credit scores, saving for a down payment. You also need to decide where you want to live. Contact me, I can help with that.

 Sellers should declutter, make minor repairs, and plan their next steps for their future. For more ideas, please see these previous posts: Benefits and Roadblocks When Decluttering, Overcoming the Difficulties of Decluttering, Strategies for Showcasing Your Home for Sale and Transform Your Home from “Just Another Listing”.

I am available to help you act when you think the time is right. If you'd like to discuss your situation, call or text me at 301-873-2106 or email me at BReynolds@LNF.com. I'm here to help with your real estate needs, even if your purchase or sale is in the future. Your referrals are always appreciated.

Let's get started. Contact me at 301-873-2106 or email me at BReynolds@LNF.com.

Understanding Low Housing Inventory: Key Factors Impacting Frederick County Real Estate in 2024

 

 

As we usher in the new year, many are keen to understand what lies ahead for the real estate market. Home sellers, buyers, and investors alike are eager to strategize and achieve their goals in the coming months. 

Before diving into my predictions for the year, I want to lay some groundwork by discussing two key factors that will shape the market: mortgage interest rates and housing inventory. 

In my previous post, I explored the elements that influence mortgage interest rates. Now, let's delve into the significant reasons behind our current low housing inventory. In my next post, I'll share my predictions for the year. 

You've likely heard the saying that real estate, much like politics, is very local. While national trends do play a role, the most impactful drivers are often local. My observations will focus on Southern Frederick County, Maryland, where I conduct most of my business. 

Frederick County is a popular and desirable place to live. It has been growing steadily, is business-friendly, has a reasonably low crime rate, and boasts high-ranking schools. So, why is there a lower housing inventory in Frederick County, MD? Here are some factors contributing to this situation:

 

1. Underbuilding: Despite several new subdivisions being built over the past decade, the construction of new homes may not be keeping pace with demand. This has contributed to a deficit in the housing supply.
2. High Demand: Frederick County's desirable location, excellent schools, and high quality of life drive strong demand for homes. This demand often exceeds the available supply, leading to lower inventory levels.
3. Homeowner Reluctance to Sell: Many homeowners are hesitant to sell their properties for several reasons:
• High Interest Rates: Many people refinanced their home loans when interest rates were very low between 2019 and 2021. Buying a new home at a current rate of 6.5%, compared to their existing 3% loan, would make the purchase more expensive. Additionally, some homeowners may be waiting for even higher prices before deciding to sell.
• Low Inventory: This creates a circular problem. Homeowners are reluctant to sell because they worry they won't find a suitable new home or can't afford to own two homes simultaneously while working out their loans, even though there are strategies to address this issue.
• Seniors Aging in Place: Over the past 15 to 20 years, it has become easier for older adults

  

  Homeowner Equity by Generation
   

  
  to remain in their homes longer. They are in better health, have new ways of managing infirmities, and have often paid off their homes, with no desire to take on a new loan. Unfortunately, they hold a majority of home ownership equity. Nationally, the Silent and Baby Boomer generations hold about 51% of total housing equity. Assuming this is roughly true for Frederick County, a significant percentage of properties are effectively off the market.
4. Economic Stability: Frederick County's relatively stable local economy, with steady job growth and low unemployment rates, encourages people to stay in their homes longer, reducing the number of properties available for sale.
5. Tighter Lending Standards: Stricter lending standards have resulted in fewer distressed properties, such as foreclosures, entering the market. This has also contributed to the lower inventory, as there are fewer homes being sold under duress. 

Understanding the factors behind low housing inventory is crucial for anyone involved in the real estate market. By recognizing the impact of underbuilding, high demand, homeowner reluctance to sell, economic stability, and tighter lending standards, we can better navigate the challenges and opportunities that lie ahead. Stay tuned for my next post, where I will share my predictions for the real estate market in the coming year. Together, we can make informed decisions and achieve our goals in this dynamic market. 

If you'd like to discuss what's best for you, feel free to call or text me at 301-873-2106 or email me at BReynolds@LNF.com. We can have an open discussion about your circumstances so you can make informed decisions. Remember, I don't do hard sales or pressure you into action—buying or selling your home is entirely up to you. 

As always, I'm here to assist with your real estate needs, even if your purchase or sale is some time away. The better prepared you are, the less stressful the process will be. Finally, if you know anyone looking to buy or sell, your referral would be greatly appreciated. 

Let's get started. Contact me at 301-873-2106 or email me at BReynolds@LNF.com.

 

 

Decoding Mortgage Rates: The Key Factors to Watch

 

Mortgage rates significantly impact the housing market, yet their determination is often misunderstood. It may seem rates are set arbitrarily, but there's a logical framework behind them. By understanding these factors, you can make informed short-term forecasts. However, long-term predictions are challenging due to numerous and various influences, such as natural disasters, political upheavals, new government policies, and legislative changes, which complicate the landscape.

We'll explore the major influences on mortgage rates and considerations for individual borrowers.

1. Federal Reserve Policies: The Fed sets the federal funds rate, impacting overall borrowing costs. When the Fed raises rates to combat inflation, mortgage rates typically increase. Conversely, lower rates to stimulate growth lead to decreased mortgage rates. Mortgage rates often move in anticipation of future Fed moves.

2. Inflation: Inflation reduces the money’s purchasing power, prompting lenders to demand higher interest rates. Higher inflation usually results in higher mortgage rates. Conversely, low inflation generally leads to lower rates.

3. Economic Indicators: Key indicators such as employment rates, GDP growth, and consumer spending provide insights into the economy's health. Strong performance often leads to higher mortgage rates due to increased credit demand. During downturns, reduced demand can lead to lower rates.

4. Housing Market Conditions: Supply and demand dynamics significantly affect mortgage rates. High demand and limited supply drive rates up, while oversupply can lead to lower rates.

5. Global Events: International events, like geopolitical tensions or economic crises, impact investor confidence and financial markets. Uncertainty or instability can cause mortgage rates to fluctuate.

6. Government-Sponsored Enterprises (GSEs): Entities like Fannie Mae and Freddie Mac play a crucial role by buying and securitizing mortgages. Their policies and actions affect mortgage rates. Changes in GSE regulations can result in rate adjustments.

Investors balance these factors to determine acceptable returns from their loans. The final adjustments to the rate offered to specific borrowers depend on: 

1. Credit Scores and Personal Financial Health: Higher credit scores generally result in slightly lower mortgage rates due to perceived lower risk. Conversely, lower scores can lead to slightly higher rates due to increased default risk.

2. Lender Policies: Different lenders have varying criteria and policies affecting the rates they offer. Factors like the lender's cost of capital, risk appetite, and competitive positioning influence interest rates. Promotions and special offers can also lead to temporary fluctuations.

Forecasting interest rates months or years from now is challenging at best. Most 2024 predictions were off, so take future outlooks with caution—they're educated guesses too. For your edification, here are one set of predictions for 2025:

Figure 1: Source: US News

Should You Wait or Buy in 2025?

Understanding how mortgage rates are determined shows many uncontrollable variables make predictions short-lived. If you're a prospective homeowner waiting for rates to drop, remember macroeconomic issues are beyond your control. Decide if you're financially ready to purchase a home and manage its expenses.

Focus on What You Can Control: Instead of fixating on rates, prioritize actions to lower your individual rate, such as saving for a larger down payment and improving your credit score.

Should You Wait or Sell in 2025?

If you're ready to sell, don't try to time the market based on rates alone. In Southern Frederick County and northern Montgomery County, low inventory and eager buyers mean a well-prepared, appropriately priced home will likely sell quickly at a fair price.

If you'd like to discuss what's best for you, feel free to call or text me at 301-873-2106 or email me at BReynolds@LNF.com. We can have an open discussion about your circumstances so you can make an informed decision. Remember, I don't do hard sales or pressure you into action—that's entirely up to you.

As always, I'm here to assist with your real estate needs, even if your purchase or sale is some time away. The better prepared you are, the less stressful the process will be. Finally, if you know anyone looking to buy or sell, your referral would be greatly appreciated. 

Let's get started. Contact me at 301-873-2106 or email me at BReynolds@LNF.com.

Capital Gains Taxes on the Sale of your Home

This blog is primarily about helping people buy and sell homes. Earlier this year, I wrote a four-part blog on ideas for preparing your home for sale by decluttering and dressing your home for a successful sale. While that may be a lot of work, those tasks can help you save a lot of time and expense when you’re ready to sell.

This post is somewhat similar. When you sell your home, Uncle Sam, as usual, wants his cut of the action in the form of Capital Gains Taxes. Although it is not too painful for most of us,  I want you to be aware of the tax and help you understand some of the rules, so you can be prepared. Hopefully you will pay as little in taxes as possible or perhaps make a little more on the sale.

This is a complicated subject, so let me make my disclaimer here. I am a REALTOR, not a financial advisor, CPA or tax expert. The following information is deemed to be accurate, but not guaranteed. This post is not intended to provide tax advice, but rather to make the reader aware of the basic rules that may apply to their specific situation. You are encouraged to reach out to appropriate experts.

Most of the time, when we sell our homes, we sell it for more than we bought it for; we sell it for a profit or capital gain. The tax code requires us to pay taxes on those gains. Capital gains are essentially the appreciation in the value of the home. For the last 25 years or so, the average home in our area has appreciated 5.5% per year. Most homes are a great investment! As an example, let’s say I bought my home for $125,000 (Cost Basis) and sold it for $800,000. Stated in a formula:

Sale Price – (Purchase Price + Improvements) = Capital Gain (Loss)

The appreciation or gain in value is $675,000. This is income, classified as Capital Gains, for the year in which the home is sold. We will discuss adjustments and tax rates further down in the post.

The tax code allows for some immediate relief or exclusions for some of those gains, if you qualify. You can exclude $250,000 as a single filer or $500,000 if you file a joint tax return.

To qualify for the exclusion, you must meet both the “ownership test” and the “use test” as follows:

Ownership Test: You must have owned and used your home as your main residence for at least two years out of the five years prior to its sale and

Use Test: During those five years, the home must have been your primary residence for the required period.

For complete eligibility requirements, limitations, and exceptions to the two-year rule, please refer to IRS “Publication 523, Selling Your Home”, There are additional rules for military, some government personnel and installment sales.

Upon the closing of the sale, the Title company will normally file Form-1099S with the IRS. If they do, you will need to report the sale even if the sale is fully excludable. You report your home sale on your income taxes for the year in which you sold it, using the Form 1040. The home sale is reported on “Schedule D (Form 1040)” and “Form 8949” for your return. However, Capital Gains are taxed at a special rate. Based on your tax filing status, the rate you pay depends on the net capital gain as shown in the table below.

Rate	Single	Married Filing Jointly	Married Filing Separately	Head of Household
0%	$0 – $47,025	$0 – $94,050	$0 – $47,025	$0 – $63,000
15%	$47,025 – $518,900	$94,050 – $583,750	$47,025 – $291,850	$63,000 – $551,350
20%	$518,900+	$583,750+	$291,850+	$551,350+

Some special circumstances:

Surviving Spouse

1. Exclusion: If you’re a surviving spouse and you sell your home within two years of your spouse’s death, you may qualify for the full $500,000 exclusion from capital gains tax. The same exclusion rules apply.
• If you’re a surviving spouse Beyond Two Years, you can exclude up to $250,000 of capital gains from your gross income.
• However, any gain beyond that amount isn’t automatically taxable. It depends on other factors.
2. Step-Up in Basis: When a property owner dies, the cost basis of the property receives a “step-up” under federal law. Depending on the legal ownership of the property, this may mean at the time of your spouse’s death, the new cost basis is the fair market value of the property, and not the original purchase price.

Capital Improvements

The cost of home improvements that increase the value of the home, not just maintain value, may be added to the original purchase price to decrease capital gains. In general, you can’t include any costs of repairs or maintenance that are necessary to keep your home in good condition but don’t add additional value or prolong its life. Examples include painting (interior or exterior), fixing leaks, filling holes or cracks, or replacing broken hardware. However, you may include these costs if they are part of a capital improvement project.

Costs of improvements that add to the value of your home, prolong its useful life, or adapt it to new uses, may be added to the basis of your property. The following chart lists some examples of improvements.

 

Realistic Examples from Southern Frederick County:

Filer Type:	Married Filing Jointly	Married Filing Jointly	Single (Widower)	Single (Divorced)
Purchase Price:	$55,000	$254,960	$38,530	$177,000
Step-up	0	0	$333.495	0
Sale Price:	$560,000	$800,100	$600,000	$560,000
Capital Gains:	$505,000	$545,140	$266,505	$383,000
Exclusion:	500,000	$500,000	250,000	$250,000
Improvements:	$35000	$75,000	0	$65,000
Net Capital Gain:	$-30,000	$-29,860	16,505	$68,000
Capital Gains Rate:	N/A	N/A	0%	15%

*These examples are actual purchase prices; the rest of the numbers may be actual or reasonable estimates.

Of course, you will need receipts and documentation to substantiate the costs of these improvements. If you think you may need them, try reaching out to the company that performed the work to see if they can provide you with the information. Like decluttering and showcasing your home, gathering and organizing these receipts can be done long before you decide to sell, making the home sale and income tax season far less stressful.

I want to stress again: this is a highly complex tax topic, and we have only just covered the most common aspects of the law. I highly recommend that you consult a competent tax professional or refer to official IRS publications for specific guidance.  

If it would be beneficial to you to know the current market value of your home, offer a free service called a “Real Estate Review.” I can review with you the basis of the estimate and even provide a signed letter stating my opinion of the value.

I hope this has been beneficial to you. Please let me know how I can help you today.