How Tax Reform Will Impact The Shenandoah Valley Housing Market

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In this article, we cover some of the provisions of the new tax legislation according to their potentially positive or negative impacts on the housing market, followed by a discussion of what would happen to real estate in a high-inflation environment, and why that’s important.

Taxes are one of the most influential factors on the price of a house. Local property tax rates,  the portion of a buyer’s paycheck that goes to Uncle Sam, and various other taxes influence the “amount of house” one can afford. Since most people with mortgages have their loan payment, insurance, and property taxes bundled together, high property taxes can greatly diminish the size of the mortgage loan a buyer can qualify for.

For example, a $175,000 mortgage (30 years, 4 percent interest) carries a payment of about $835 before insurance and taxes, with every $20,958 of the loan equivalent to $100/month of payments. However, if the property tax is $6,000 a year, or $500 a month, the buyer would be paying an amount of tax that, if it didn’t exist, could qualify them for almost an additional $105,000 of principal. Of course, all houses have some level of property tax. The good news for the Shenandoah Valley real estate market is that property taxes are generally lower than in other states, particularly higher-tax states on the coasts.

Now that Congress has passed the Tax Cuts & Jobs Act of 2017, how will the housing market be affected? The bill’s various repercussions include a permanent reduction in corporate tax rates, temporary reductions in individual tax rates, and the elimination of certain deductions in exchange for an increase in the standard deduction. In this article we cover some of the provisions of the new tax legislation according to their potentially positive or negative impacts on the housing market, followed by a discussion of what would happen to real estate in a high-inflation environment, and why that’s important.

Positive Effects

  • Estate tax exclusion: The estate exclusion doubles to $11.2 million. While this could have a beneficial impact on home prices in the top percentile, it’s unlikely to affect the rest of the market.
  • Economic Optimism: Data shows Americans are feeling more optimistic about the economy now than they have in years. This could be good for real estate, as positive feelings about the future tend to inspire big decisions like buying or selling a home.

Negative Effects

  • Standard deduction: The revision of the standard deduction (increased to $12,000 for single filers and $24,000 for families) is expected to mildly dampen demand for home buying because of the decreased incentive to itemize deductions such as mortgage interest and property tax–two reasons a person considers purchasing a home versus renting.
  • Caps on mortgage interest /property tax deductions: The new tax law caps state income and property taxes at $10,000. The maximum amount of a mortgage that can have interest written off on it is $750,000. Implementation of the mortgage interest/property tax write-off caps is expected to disproportionately influence the housing markets in states with both high property taxes and home prices. These would generally be states with large urban areas and more affluent populations. Since median home prices in the Shenandoah Valley are well below the maximum, and property taxes are low, our local real estate markets shouldn’t be hurt by these caps.
  • The end of the “moving expenses” deduction: Now only members of the military can claim moving expenses as a deduction on their taxes. One would think that the effect of this would be minimal, but it’s potentially negative in terms of house prices and value.

Could The New Tax Policy Over-Stimulate The Economy?

Could the new tax policy over-stimulate the economy?

The Tax Cuts & Jobs Act, which is projected to add more than one trillion to the deficit over the next 10 years, is a stimulus of sorts—it uses deficit spending to provide tax cuts that primarily benefit corporations and those on the upper rungs of the income ladder. Currently, with unemployment at 4.1% as of January 2018 and record highs in the stock market (along with very high house prices)—not to mention an 0.5% inflation reading in the Consumer Price Index for January—there is a possibility that the tax policy could lead to several rate hikes.

The current stated intention of the Federal Reserve is to raise interest rates three times this year. The threat of inflation, then, is real, and mortgage rates could spike—the current 4% to 4.125% that’s typical of a 30-year fixed loan is historically low to begin with. Home prices would likely decline by a good amount if inflation was accompanied by a lack of concurrent elevations in wages. If annual inflation as measured by the CPI is 6%, but wages only go up an average of 3%, purchasing power would be reduced at the same time that interest rate hikes are causing home prices to go up.

To put this into perspective, let’s return to our $175,000 mortgage, 30-year fixed at 4%, with a payment of about $835. This payment goes up to around $939 if the interest rate is 5%, and up to about $1044 if it goes up to 6%. With stagnant wages (what was called “stagflation” in the 1970s), this would reduce the number of potential buyers of houses at given prices, theoretically causing prices to drop. Alan Greenspan, the former chair of the Federal Reserve, has posed the argument in favor of the case for potential stagflation.

The Good News About The Shenandoah Valley Real Estate Market

Negative impacts aside, there’s plenty of bright side to look on from a financial perspective of home shopping in the Shenandoah Valley. Median home prices and the number of homes purchased in major markets such as Harrisonburg have increased over the past few years as the area becomes more attractive to different demographics such as families and retirees. Furthermore, most of the tax bill’s housing-related propositions are for tax bills that are far greater than the typical tab for a single-family property in the Shenandoah Valley’s most popular towns, and a $750,000 mortgage cap for interest write-offs is far above the median home price of a place such as Harrisonburg, even with the price increases (which have placed Harrisonburg’s median at about $200,000).

Overall, home buyers are just as likely to weigh lifestyle preferences such as proximity to work and family as abstract economic conditions. Luckily, The Shenandoah Valley is a great place to buy a home for both financial and emotional reasons. Strong schools, a good job base, university presence, and outdoor recreational options are all qualities of our region that most home buyers have on their wish list.

 

With interest rates still relatively low, now is as good a time as ever to think about buying your first or next home. Contact F&M Bank’s mortgage team for expert advice and help with getting the right loan to buy the perfect home for you and your family.

We do not provide tax advice. Please contact your tax advisor.

 

Best Apps for Money Management

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With the proper tools, it’s never been easier to build your financial literacy, monitor daily transactions, and grow your accounts to meet short and long-term savings goals.

Do you like to use technology to problem solve and create more efficiency in your life? If you said yes, then “fintech,” a term that describes the merging of tech and finance, is a good match for you. With an ever-growing number of money management apps, access to everything from personal accounts to global markets is at our fingertips. People of all ages from kids to retirees, as well as business owners, can not only get a detailed overview of their financial situation but have fun tracking every dollar and cent. With the proper tools, it’s never been easier to build your financial literacy, monitor daily transactions, and grow your accounts to meet short and long-term savings goals.

Whether it’s creating a budget, organizing your personal finances, saving for vacations and retirement, or managing your small business’ spending, all aspects of your money can be managed directly from your smartphone. We’ve identified some of the best personal finance, investment, business, and kids’ apps to streamline your time and resources. All are free to download and use unless otherwise noted.

Best Personal Finance Apps

From credit cards to bank and retirement accounts, our financial lives are complicated. Understanding what you have and how to make it work for you is critical. Whether you’re trying to improve your credit score before making your first home purchase, or you want to save for a vacation or big purchase, these apps can help you take those specific steps as well as basic ones like creating a budget.

Know Your Credit Score

As your credit score is the backbone of your financial life, consider downloading Credit Karma. It gives you a free copy of your credit report as well as advice on steps you can take to get your score where you want it to be. In this age of online security threats, Credit Karma also provides you with notifications to alert you to new activity reflected on your report.

Banking Apps

Your bank account is at the heart of all you do, from paying bills to buying lunch on the go. A sound banking app, such as F&M Bank’s Mobile Banking app will make you the master of your domain from the convenience of your phone or tablet.  Your account is kept safe via passcode or touch ID entry to the app, where you can view transactions, pay bills, deposit checks through mobile deposit, and transfer funds between F&M bank accounts. Using the F&M mobile app will not save any sensitive information to your phone.

Budgeting Apps

While on-the-go access to your accounts is essential, creating objectives for your money is just as critical. Squirrel is F&M Bank’s no-cost Personal Financial Management Tool and it enables you to track your spending, create budgets, and set goals. While you’ll need an F&M Bank online account login to use Squirrel, you can link your Squirrel account to other accounts you have such as a 401(k) or other retirement account. With access to 15,000 financial institutions, Squirrel provides you with a full financial picture, including a cash flow calendar and visual tracking of progress to your goals.

With a complete financial picture, including your total net worth after debts and assets are combined, Squirrel offers the same information as the mobile banking app as well as so much more. Don’t just watch your money go in and out on your account ledger. Take control and set goals for saving and debt repayment, check cash flow before making discretionary purchases, and feel empowered to take the steering wheel of your financial life

F&M Bank Squirrel App

Best Apps for Business Owners

Companies with a business checking account can also use their bank’s mobile app to keep track of daily transactions and cash flow.

Beyond you’re a business banking app, inDinero is a tax compliance and accounting app that compiles information from all of your business bank accounts and credit cards to present a clear, comprehensive view of your company’s spending. Discover where your money goes and when, and obtain forecasts of future spending based on current trends. inDinero allows you to gain insight into the total picture of your business’ finances. Plans start at $295/month.

To take the pain out of small business accounting, consider adding Freshbooks to your life. This software makes your billing process seamless and straightforward, creating attractive, professional invoices in seconds. You can track your time on projects and follow-up with clients directly from Freshbooks, freeing you from cumbersome paperwork and administrative tasks. Freshbooks allows you to track your expenses and, because it’s cloud-based, you can have a snapshot of all of your business expenses anytime, anywhere. After a 30 day free trial, Freshbooks offers monthly plans starting at $10.

F&M Bank Treehouse Club ScreenshotBest Money Apps for Kids

F&M Bank Treehouse Club makes saving fun.  Kids can access their savings account as well as play games designed to increase their financial literacy. The app makes earning and learning can be exciting for little ones.

PiggyBot is a virtual piggy bank to make savings a more hands-on experience for kids. They can feature photos of the items they are saving for in PiggyBot for additional incentive to keep adding to their bank, combining the popularity of picture-based platforms into the app.

How will you use “Fintech” to manage your money?

Whatever your current financial situation and future goals, the range of quality personal finance and business apps can make the path to a sound financial future easier and more manageable than ever. With just a few apps added to your tablet or mobile device, you can understand your money in new ways and, more importantly, make it work for you. F&M Bank customers, and those who would like to open an F&M Bank account, can take advantage of our free Personal Financial Management Tool, Squirrel. It’s just another way we fulfill our mission as a community bank to meet the needs of our customers and community by offering the best financial products.

Join the Treehouse Savings Club!

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Avoid ID Fraud this Tax Season

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As tax season gets underway, F&M Bank is urging all customers to take extra precaution when filing their return to prevent their exposure to tax fraud.

“Fraudsters are using very clever tactics to get a hold of your personal information and submit false tax claims,” said Dean Withers, CEO. “Consumers must be suspicious of any communication from the IRS – through email, text or social media – that requests personal information, and should keep a watchful eye out for missing W-2s and mail containing sensitive financial information.”

Tax identity fraud takes place when a criminal files a false tax return using a stolen Social Security number in order to fraudulently claim the refund. Identity thieves generally file false claims early in the year and victims are unaware until they file a return and learn one has already been filed in their name.

To help consumers prevent tax ID fraud, F&M Bank is offering the following tips:

  • File early. File your tax return as soon as you’re able giving criminals less time to use your information to file a false return.
  • File on a protected Wi-Fi network. If you’re using an online service to file your return, be sure you’re connected to a password-protected personal network. Avoid using public networks like a Wi-Fi hotspot at a coffee shop.
  • Use a secure mailbox. If you’re filing by mail, drop your tax return at the post office or an official postal box instead of your mailbox at home. Some criminals look for completed tax return forms in home mailboxes during tax season.
  • Find a tax preparer you trust. If you’re planning to hire someone to do your taxes, get recommendations and research a tax preparer thoroughly before handing over all of your financial information.
  • Shred what you don’t need. Once you’ve completed your tax return, shred the sensitive documents that you no longer need and safely file away the ones you do.
  • Beware of phishing scams by email, text or phone. Scammers may try to solicit sensitive information by impersonating the IRS. Know that the IRS will not contact you by email, text or social media. If the IRS needs information, they will contact you by mail first.
  • Keep an eye out for missing mail. Fraudsters look for W-2s, tax refunds or other mail containing your financial information. If you don’t receive your W-2s, and your employer indicates they’ve been mailed, or it looks like it has been previously opened upon delivery, contact the IRS immediately.

If you believe you’re a victim of tax identity theft or if the IRS denies your tax return because one has previously been filed under your name, alert the IRS Identity Protection Specialized Unit at 1-800-908-4490. In addition, you should:

  • Respond immediately to any IRS notice and complete IRS Form 14039, Identity Theft Affidavit.
  • Contact your bank immediately, and close any accounts opened without your permission or tampered with. Contact the three major credit bureaus to place a fraud alert on your credit records:

• Equifax, www.Equifax.com, 1-800-525-6285

• Experian, www.Experian.com, 1-888-397-3742

• TransUnion, www.TransUnion.com, 1-800-680-7289

  • Continue to pay your taxes and file your tax return, even if you must do so by paper.

More information about tax identity theft is available from the FTC at ftc.gov/taxidtheft and the IRS at irs.gov/identitytheft.

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How To Teach Kids About Money: A Comprehensive Guide

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Explaining money to kids can feel challenging, especially if your own finances aren’t perfect. And it doesn’t help that many of our purchases are made online or with debit and credit cards at the store. Kids don’t see their parents budget and make purchases with cash and checks as much as they used to. However, teaching financial literacy to our kids is more important than ever. Luckily, it doesn’t have to be difficult or boring. F&M has scoured the best sources out there to bring you this comprehensive guide to teaching kids to save money, budget, and develop other positive financial habits. From modeling good habits to playing a fun game or app, these tips will help kids of all ages develop a strong financial foundation. You might even learn a few things yourself along the way.

How To Teach Kids About Money By Modeling Positive Habits

Where do children learn about money? It probably won’t surprise you that parents are the most important influence. After all, children learn most things from their parents. Money is one thing you shouldn’t wait to talk about–research shows that kids’ financial behavior may already be shaped by the time they start first grade. Here are five things you can do now to model healthy financial behavior for your kids and help them develop a positive attitude toward saving and spending money.Behaviors, habits, and attitudes developed in youth appear to strongly affect adult financial well-being.

  • Let them see you save money. It doesn’t take a lot of parenting experience to realize “Do as I say, not as I do” is rarely if ever an effective teaching strategy. Your kids are watching and listening more than you realize and they will parrot your habits and behaviors back to you. So if you want to encourage children to save money you need to let them see you save. While most of your savings might be tied up in a 401k or other online accounts, you can establish a simple savings jar in a prominent place in your house. Drop your spare change in when your child is watching or let them throw the coins in. You don’t have to make a big deal of it each time, but now and then let the jar inspire a conversation about why you are saving, what it’s for, and how it can help you in the future.

For example, “When we put away our spare change every day it eventually adds up. By the time we go to the beach next summer we’ll have enough saved to pay for a special experience like dinner in our favorite restaurant.” Or, “Do you remember when our car got a flat tire last month? Car repairs can be expensive, and we don’t know when something will break. I’m saving my change in this jar so I’ll be prepared the next time something breaks.”

  • Turn everyday errands into teachable moments. Whenever your kids are with you at the grocery store, gas station, and other routine errands, explain the choices you’re making and how you pay for purchases. Many people use debit and credit cards instead of checks or cash, but you can still explain that a debit card is a method of paying with the money in your bank account, whereas a credit card is a way to temporarily borrow money and pay it back at the end of the month.

Do you use a certain credit card to accrue points or cash back? You can explain that, too; even young children can grasp the idea of rewards. You can also work in little lessons like, “I use my credit card to get rewards, but I always pay the balance at the end of the month.” Or perhaps you don’t use credit cards at all after finally getting out of debt, in which case you could say something like “Mommy and Daddy always pay with our bank account because we don’t want to spend more than we have.” Keep it simple, but don’t be afraid to talk about all aspects of money management when it comes up.

  • Let your kids watch you write a check. Preschool-age children are very interested in letters, numbers, and writing. Although most people don’t write as many checks as they used to, there are still occasions for it. Have your kids watch as you point out the different parts of a check–”Here’s the date, here we write the name of the person we’re giving the money to…this is the memo space where we can write what the check is for. Do you know what this is for? We’re paying your piano teacher for one month of lessons.”
  • Have your child press the buttons at the ATM. It’s a universal truth that kids love to push buttons. Ask your child to help you at the ATM and explain each step of the process. “First we insert our debit card. Then we type our password. Here are the different amounts of money we can take out. I’m getting money for our trip to the zoo. What do you think we’ll need to pay for there?”
  • Help your child differentiate between needs and wants. It’s natural to feel frustrated when your child begs for something at a store. Of course, that doesn’t mean you should give in. But a little empathy can go a long way and help your kids recognize the difference between things they need and things they want. After all, adults aren’t immune to wanting things. At the grocery store you can say things like, “We need to buy food so we can take care of our bodies with healthy meals and snacks. Mommy likes ice cream, too, but that is something we want, not something we need. We can choose to spend our extra money on something we want like ice cream, or save it for something bigger.” Or, “We came to Target because you outgrew your sneakers and need a new pair. There are extra things Daddy would love to buy at Target, too, but today we are just going to buy what we need.”
  • Be honest. Kids can usually tell when you’re trying to brush them off. If you try to get away with a vague or untruthful answer, you’ll probably just be met with a string of “why?” Instead of saying “we don’t have enough money to buy that toy,” if the truth is that you simply don’t want another toy in your house, frame your answers as a choice. Choices empower people of all ages. “I’m choosing not to buy that toy today because I’d rather spend the money on a fun experience like going to the movies with you.”

DIY Activities For Teaching Kids And Students About Money

DIY Savings Ideas

Parents and teachers can help kids learn about money management while also sneaking in a few Math lessons with these fun and easy-to-do activities.

  • Turn a few envelopes into a fun budgeting lesson. You’ve probably heard of the envelope budgeting system for adults, in which you divide your money in cash into envelopes earmarked for specific expenses as well as fun. Add a few crayons and you’ve got a fun activity for kids that helps them understand budgeting and saving in a concrete, tactile way.

Your child doesn’t need to have as many envelopes as an adult would. Let kids think of a few items they’d like to save up to buy. On each envelope, they draw a picture of the desired object or experience. You can even differentiate between short-term and long-term goals. For example, an expensive Lego set will take longer to save for than a trip to the ice cream parlor. As they receive money they can decide how to allocate it between their savings goals. That also teaches prioritizing and weighing instant gratification against long-term goals.

  • Make a money chart. Another way to visualize saving is to create a chart. With a piece of posterboard, a few markers, and a sheet of star stickers–all available at the drug store–you can help your child figure out how long it will take to reach various savings goals based on the cost of the item and the amount of money they can expect to receive over the next few months, whether from an allowance or holiday gifts. Each time your child saves a certain amount of money toward their goal, they get to put a sticker in the box, a tracking method that never fails to satisfy. Seeing the chain of stickers will only encourage them to keep going.
  • Role play with a toy cash register. This is a classic toy that comes in many different models. Find one with coins and cash in a drawer that opens and shut. That way, aside from the fun of pressing the buttons, kids can learn about money through play. As the adult, you can guide the role play from transactions at the grocery store to the bank. Kids will grasp the idea of handing over money in exchange for an item or service, getting change, and figuring out how much they have left to spend.

Games Make It Fun To Explain Money To Kids

Games that Teach Personal Finance

When your kids grow out of the imaginative play stage, you can still make learning fun with board games and online activities.

Online Games

Board Games

  • Payday is a classic budgeting board game for ages eight and up.
  • Lakeshore Allowance Board Game teaches kids how to make good decisions with the money they receive.
  • The Money Bags board game comes with realistic-looking bills and coins.
  • Loose Change teaches kids about different combinations of coins that add up to a dollar.Treehouse App Screenshot

Money Apps For Kids

In addition to online games, here are some educational money apps for kids and teens that make learning good financial habits fun.

  • Green$treets: Unleash the Loot is a free money management app for ages five to ten.
  • Savings Spree ($5.99) is a financial literacy app for kids seven and older.
  • Celebrity Calamity is a free app that takes a playful approach to budgeting.
  • Kids who have their own savings account can download their bank’s mobile app to keep track of their money in real time. F&M Bank also offers a special app just for kids as part of our Treehouse Savings Club. They can access their savings account, play games, and learn important financial concepts. Download the free app for iOS or Android.

Books That Teach Kids About Money

Books that teach kids about money

Reading to your child is a great opportunity to bond…and teach them essential money management skills. Here are our favorite selections for readers of all ages featuring beloved characters as well as new ones.

  • The Berenstain Bears’ Trouble With Money by Stan Berenstain
  • Just Saving My Money by Mercer Mayer
  • Amelia Bedelia Means Business by Herman Parish
  • Alexander, Who Used To Be Rich Last Sunday by Judith Viorst
  • Curious George Saves His Pennies by Margaret Rey
  • Those Shoes by Maribeth Boelts
  • One Cent, Two Cents, Old Cent, New Cent by Bonnie Worth
  • A Chair For My Mother by Vera B. Williams
  • Bunny Money by Rosemary Wells
  • The Money Savvy Student by Adam Carroll
  • Not Your Parents’ Money Book by Jean Chatzky
  • What All Kids Should Know About Saving and Investing by Rob Pivnick

Practice And Reward

At the end of the day, one of the best ways to learn is through practice. Help your child open their own savings account so they can put money away and develop a relationship with a local bank. You can even offer to match a certain percentage of your child’s deposits, much like an employer matches an employee’s 401(k) contributions.

As a community bank, F&M cares about teaching financial literacy to the next generation. Our Treehouse Savings Club gives school-age kids the opportunity to have their own bank account with no minimum balance or maintenance fees. They even earn interest on their savings. The program also comes with a piggy bank, monthly prizes, and other fun extras. Visit your nearest F&M Bank location to learn more and sign up for the Treehouse Savings Club today.

 

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