U.S. housing market should slow to sustainable growth rate this year

Home prices are expected to continue rising in 2016, but not as fast as they have over the past few years.

Q. The housing market in our area seems to be slowing down. What's the forecast for 2016?

A. Home-price increases and sales in many parts of the nation are indeed starting to ease, but virtually no experts predict that the market will take a nose-dive like it did about 10 years ago. Instead, it's merely slowing to a more sustainable pace that should ensure more modest but steady growth in 2016 and beyond.

The consensus among economists is that home prices nationwide will rise an average of 3 percent to 4 percent this year. They rose an average of about 4 percent last year and a stronger 6.4 percent in 2014.

Several big cities have posted double-digit price hikes over the past 12 months and are expected to continue outpacing the overall national average in the year ahead. They include Denver, Dallas, Miami, Seattle and Pittsburgh - all of which are enjoying strong local economies.

Still, the 2016 housing market won't be without its challenges. Mortgage rates are expected to go up another one-half percentage point or so: The higher monthly loan payments they create, coupled with rising prices, will make it even more difficult for millions of folks to buy their first home. Construction of new apartments is also expected to remain far below historic averages, which will continue to put heavy upward pressure on rents.

Real estate trivia: Homebuilders blame the prolonged decline in new apartment construction on higher land prices, a lack of buildable lots, a shortage of skilled workers and tighter standards on construction loans that have been imposed by lenders.

Q. Is a homeowners association responsible for enforcing city ordinances?

A. No. HOAs must enforce their own rules and regulations, and cities must enforce their own ordinances. Unless a particular local law states otherwise, a condo HOA is not obligated - nor is it authorized - to be the enforcement arm of the city.

To illustrate, let's say a condo owner violates a local anti-noise or anti-smoking ordinance, a neighboring condo owner then notifies the city, and the city orders the person to cease and desist.

Some HOA's bylaws or CC&Rs include a provision that any violation of a city ordinance is automatically deemed a violation of the association's rules, too. The HOA can go after the offending owner, but it does so for breaking the rules that govern the overall condo or townhouse complex, not as a violation of the city's law.

Q. After I lost my old job last March, I started a small mail-order business in my spare bedroom. I use the room to track orders on my computer, store inventory and office supplies, make phone calls, etc. Can I take the home-office deduction on my next tax return?

A. It depends. Though the Internal Revenue Service has audited less than 1 percent of all returns that were filed over each of the past few years, it tends to scrutinize those that include a home-office deduction - in part because the agency's auditors often can succeed in reducing the amount of write-offs that were taken or deny the deduction completely.

To qualify for the home-office deduction, the IRS says that the room must be for the "regular and exclusive use" of your business. That means you aren't eligible for the write-off if, say, the room doubles as a nursery for a newborn or a place for visitors to occasionally stay overnight.

In addition, the IRS requires that the space also must be your "principal place of business." That doesn't mean you cannot have an office or storefront at another location, but you'll also have to use the space in your home on a regular basis for business purposes to claim the deduction.

If you do qualify, you can write-off part of your mortgage or rent payments, property taxes, phone bills, utilities, insurance and related costs that are based on the percentage of the home's space that's dedicated to the business.

As an alternative, you could claim the deduction based on a standard rate of $5 per square feet of the floor space used for business-only purposes. That's a much easier way to calculate your write-offs, but using this method limits the amount you can claim to a maximum of $1,500.

You can get more information from IRS Publication 587, Business Use of Your Home, by calling the agency at (800) 829-3676 or by downloading it from www.irs.gov. It also would be wise to consult with an accountant or similar tax professional.

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© 2016, Cowles Syndicate Inc.