Changewave Research: Trends in Tax Preparation and Home Mortgages

ChangeWave Research: Trends in Tax Preparation and Home Mortgages

ChangeWave Research Report:

Tax Preparation and Home Mortgage Trends

Taxes:Online Filings Strong, Intuit Demand Softens

Home Mortgages:Slowdown in Refi’s,Shift from 30- to 15-Yr

Overview

Back in February 2003, we surveyed the Alliance on trends in tax preparation, including the outlook for industry leader Intuit. One of the key findings was that the market for Intuit's Turbo Tax software and web-based tax filing service was becoming saturated.

This year, as a follow-up, we went back to our members the week of March 31 - April 5, 2004, to see how they were managing tax preparation -- including their use of Intuit products and services. We also took a look at the home mortgage and refinancing marketplace. A total of 999 Alliance members participated.

The demographic profile of the ChangeWave Alliance must be taken into account when interpreting the findings of this survey. Alliance members are typically highly educated, early technology adopters, employed in a broad cross section of more than 20 vertical markets. Here's what we found:

(A)Tax Preparation

Help Wanted: Professional Tax Assistance is on the Rise. Forty-two percent (42%) of respondents said they obtained assistance from a Tax Professional this year, a five-percentage point increase over our February 2003 survey results. On the other hand, just over half (54%) prepared their taxes without any outside assistance.

Tax Preparation in the Electronic Age. Nearly half (49%) of all respondents said they used or intended to use tax preparation software, down slightly from last year. The most likely explanation for this is the increase in members preparing their taxes with a Tax Professional.

Increasing Number of Online Filers. One-third (33%) of respondents said they were filing their tax returns using a paid online service. This is up significantly from last year, when only a quarter (24%) filed their taxes via a paid online service.

Intuit Usage Slips. The percentage of respondents reporting they use either Intuit's 'Turbo Tax' software or website dropped slightly to 38% this year from 40% in our February 2003 survey. This finding appears to signal sluggish growth for Intuit's tax products and services this season.
Another 11% report using either H&R Block's tax software or website -- a surprisingly strong number that suggests H&R Block has begun chipping away at Intuit's tax market share.

(B) Home Mortgage and Refinancing Marketplace

Refinancing Levels. Nearly 2-in-5 respondents (38%) report they have refinanced their home mortgage during the past year, reflecting the boom in refinancing experienced over the last 12 months.

Terms A' Changing? Among respondents who have refinanced this past year, an impressive 19% changed from a 30-year to a 15-year mortgage. Another 60% of refinancers said they had not changed the term of their mortgage.

Cashing Out. Nearly a third (32%) of respondents who have refinanced said they took cash out of their home equity. The reasons were fairly evenly split between debt consolidation/payments (12%), home improvements (11%), and other purposes (9%).

Refinancing Outlook for Next 12 Months. Looking ahead, 15% of respondents said they plan on refinancing their home mortgage over the coming year. This is significantly lower than the 38% who said they had refinanced over the previous 12 months.

Planning to Change Mortgage Terms. Among those respondents who plan to refinance in the coming year, 21% said they would change from a 30-year to a 15-year mortgage. Another 56% said they do not plan to change the term of their mortgage. These results are similar to the patterns shown by those who have already refinanced in the past 12 months, and further reinforce that there is an ongoing shift in preference towards the shorter 15 yr. time horizon.

Low Interest Rates Driving Refinancing. More than half (54%) of those respondents who either plan on refinancing or already refinanced,said the most important reason was to "Lock-In a Low Fixed Interest Rate." Another 24% said they wanted to reduce their monthly payments.

Intending to Cash Out. Forty-four percent (44%) of respondents who plan to refinance in the coming year said they intend to take cash out of their home equity. This is significantly higher than the 32% who refinanced over the past 12 months and took cash out of their home equity.

Good News for the Home Remodeling Industry. The biggest reason cited by respondents who plan to refinance over the coming 12 months and take cash out of their home equity, is to pay for home improvements. A total of 19% of members who are going to refinance said they'll be taking cash out to pay for home improvements -- compared to 11% among those who have already refinanced over the past 12 months.

The ChangeWave Alliance is a group of 4,500 highly qualified business, technology, and medical professionals in leading companies of select industries—credentialed professionals who spend their everyday lives working on the frontline of technological change. ChangeWave surveys its Alliance members on a range of business and investment research and intelligence topics, collects feedback from them electronically, and converts the information into proprietary quantitative and qualitative reports.

Helping You Profit From A Rapidly Changing World ™

Table of Contents

Summary of Key Findings...... 4

The Findings...... 5

Tax Preparation...... 5

Home Mortgage and Refinancing Marketplace...... 7

ChangeWave Research Methodology...... 11

About ChangeWave Research...... 12

I. Summary of Key Findings

Introduction

Tax Preparation
Home Mortgage and Refinancing Marketplace

II. The Findings

A. Tax Preparation

(1) Question Asked: Do you participate in the preparation and filing of taxes for your household?

Current
Survey
Apr 2004 / Previous
Survey
Feb 2003
Yes / 96% / 98%
No / 4% / 2%

Taxing Work. Ninety-six percent (96%) of respondents said they take part in the preparation and filing of taxes for their households.

(2) Question Asked: This year, are you preparing taxes with the assistance of a tax professional, with a tax service like H&R Block, or without any outside assistance?

Current
Survey
Apr 2004 / Previous
Survey
Feb 2003
With a Tax Professional (i.e., my accountant) / 42% / 37%
With a Tax Preparation Service (i.e., H&R Block) / 4% / 4%
Without Outside Assistance / 54% / 59%

Help Wanted: Professional Tax Assistance is on the Rise. Forty-two percent (42%) of respondents said they obtained assistance from a Tax Professional this year, a five-percentage point increase over our February 2003 survey results. On the other hand, just over half (54%) prepared their taxes without any outside assistance.

(3) Question Asked: This year, have you used or do you intend to use tax preparation software or a tax preparation Website to prepare taxes (even if you eventually work with a tax professional)?

Current
Survey
Apr 2004 / Previous
Survey
Feb 2003
Yes, Tax Preparation Software / 49% / 53%
Yes, Tax Preparation Website / 7% / 7%
No / 43% / 37%

Tax Preparation in the Electronic Age. Nearly half (49%) of all respondents said they used or intended to use tax preparation software, down slightly from last year. The most likely explanation for this is the increase in members preparing their taxes with a Tax Professional.

(4) Question Asked: This year, have you filed or do you intend to file your return electronically through an online service that requires a payment?

Current
Survey
Apr 2004 / Previous
Survey
Feb 2003
Yes / 33% / 24%
No / 62% / 66%
Don't Know / 4% / 10%

Increasing Number of Online Filers. One-third (33%) of respondents said they were filing their tax returns using a paid online service. This is up significantly from last year, when only a quarter (24%) filed their taxes via a paid online service.

(5) Question Asked: Intuit - publisher of Turbo Tax - is the perceived market leader in the electronic preparation and filing of individual tax returns. H&R Block is also a player in thismarket. This year, did you use an Intuit or H&R Block product - i.e. 'Turbo Tax' Preparation Software, 'Tax Cut' Preparation Software or either company's website - to prepare and file your return?

Current
Survey
Apr 2004 / Previous
Survey
Feb 2003
Yes, Intuit 'Turbo Tax' Preparation Software / 33% / 36%
Yes, Intuit 'Turbo Tax' Website / 5% / 4%
Yes, H&R Block 'Tax Cut' Preparation Software / 10% / NA
Yes, H&R Block Website / 1% / NA
No / 49% / 52%
Don’t Know / Other / 4% / 8%

Intuit Usage Slips. The percentage of respondents reporting they use either Intuit's 'Turbo Tax' software or website dropped slightly to 38% this year from 40% in our February 2003 survey. This finding appears to signal sluggish growth for Intuit's tax products and services this season.
Another 11% report using either H&R Block's tax software or website -- a surprisingly strong number that suggests H&R Block has begun chipping away at Intuit's tax market share.

B. Home Mortgage and Refinancing Marketplace

(1) Question Asked: Do you own a home?

Yes / 92%
No, But Now in the Process of Buying a Home / 3%
No / 5%

Home Ownership. Ninety-two percent (92%) of respondents are currently homeowners, while another 3% are in the process of purchasing a home.

(2) Question Asked: Have you refinanced your home mortgage during the past 12 months?

Yes / 38%
No / 56%
Don't Own My Own Home / NA / 5%

Refinancing Levels. Nearly 2-in-5 respondents (38%) report they have refinanced their home mortgage during the past year, reflecting the boom in refinancing experienced over the last 12 months.

(2A) Question Asked: When you refinanced, did you change the term of your mortgage?

Yes, Changed from 30 yr. to 15 yr. Mortgage / 19%
No, Remained at 30 yr. Mortgage / 38%
No, Remained at 15 yr. Mortgage / 22%
Other / 21%

Terms A' Changing? Among respondents who have refinanced this past year, an impressive 19% changed from a 30-year to a 15-year mortgage. Another 60% of refinancers said they had not changed the term of their mortgage.

(2B) Question Asked: When you refinanced, did you take any cash out of your home equity to pay for home improvements or to consolidate/pay down debt?

Yes, to Pay for Home Improvements / 11%
Yes, to Consolidate/Pay Down Debt / 12%
Yes, Other / 9%
No / 67%
No Answer / 1%

Cashing Out. Nearly a third (32%) of respondents who have refinanced said they took cash out of their home equity. The reasons were fairly evenly split between debt consolidation/payments (12%), home improvements (11%), and other purposes (9%).

(2C) Question Asked: When you refinanced, did you switch from an amortized mortgage to an interest-only mortgage?

Yes / 6%
No / 90%
Don't Know / 3%
Other / 2%

Little Interest in Interest-Only Mortgage. Only 6% of respondents who refinanced said they switched from an amortized mortgage to an interest-only mortgage.

(3) Question Asked: Do you plan on refinancing your home mortgage over the next 12 months?

Yes / 15%
No / 79%
Don't Own My Own Home / NA / 6%

Refinancing Outlook for Next 12 Months. Looking ahead, 15% of respondents said they plan on refinancing their home mortgage over the coming year. This is significantly lower than the 38% who said they had refinanced over the previous 12 months.

(3A) Question Asked: When you refinance, will you change the term of your mortgage?

Yes, Will Change from 30 yr. to 15 yr. Mortgage / 21%
No, Will Remain at 30 yr. Mortgage / 35%
No, Will Remain at 15 yr. Mortgage / 21%
Other / 23%

Planning to Change Mortgage Terms. Among those respondents who plan to refinance in the coming year, 21% said they would change from a 30-year to a 15-year mortgage. Another 56% said they do not plan to change the term of their mortgage. These results are similar to the patterns shown by those who have already refinanced in the past 12 months, and further reinforce that there is an ongoing shift in preference towards the shorter 15 yr. time horizon.

(3B) Question Asked: When you refinance, will you take any cash out of your home equity to pay for home improvements or to consolidate/pay down debt?

Yes, to Pay for Home Improvements / 19%
Yes, to Consolidate/Pay Down Debt / 14%
Yes, Other / 11%
No / 56%

Intending to Cash Out. Forty-four percent (44%) of respondents who plan to refinance in the coming year said they intend to take cash out of their home equity. This is significantly higher than the 32% who refinanced over the past 12 months and took cash out of their home equity.

Good News for the Home Remodeling Industry. The biggest reason cited by respondents who plan to refinance over the coming 12 months and take cash out of their home equity, is to pay for home improvements. A total of 19% of members who are going to refinance said they'll be taking cash out to pay for home improvements -- compared to 11% among those who have already refinanced over the past 12 months.

(3C) Question Asked: When you refinance, will you switch from an amortized mortgage to an interest-only mortgage?

Yes / 7%
No / 71%
Don't Know / 20%
Other / 2%

Plan to Switch to Interest-Only Mortgage? Only 7% of respondents who plan to refinance said they will switch from an amortized mortgage to an interest-only mortgage.

(4) Question Asked: Did you establish or change your home equity line of credit in the past 12 months?

Yes, Established Home Equity Line of Credit / 14%
Yes, Increased Home Equity Line of Credit / 4%
Decreased Home Equity Line of Credit / 2%
No Change in Home Equity Line of Credit / 25%
Do Not Have Home Equity Line of Credit / 53%
No Answer / 2%

Home Equity Line of Credit. Fourteen percent (14%) of respondents reported they established a home equity line of credit during the past year. Another 4% increased their home equity line of credit, while 2% decreased it.

(4A) Question Asked: What is the most important reason why you established or increased your home equity line of credit?

To Pay for Home Improvements / 25%
To Consolidate/Pay Down Debt / 18%
To Generate Cash for Other Investments / 39%
Other / 18%

Generating Cash for Investments. Nearly 2-in-5 (39%) of those respondents who either established or increased their home equity line of credit said the main reason was to "Generate Cash for Other Investments." Another 25% said the most important reason was "Home Improvements."

(5) Question Asked: How did you obtain your current mortgage and/or home equity line of credit?

Local Mortgage Broker / 22%
Local/Regional Bank / 18%
National bank (i.e. Bank of America) / 16%
National Mortgage Company (i.e. Countrywide) / 9%
Online Only (e.g., e-Loan.com, LendingTree.com) / 7%
Brokerage Firm (e.g., Charles Schwab, Merrill Lynch) / 2%
Not Applicable / 20%
Other / 5%

Top Providers. Respondents chose Local Mortgage Brokers (22%) as the top provider for their mortgage and/or home equity line of credit. Local/Regional Banks (18%) placed second, followed by National Banks (16%).

(6) Question Asked: Finally, for those who refinanced or plan on refinancing their home mortgage, what is the most important reason why?

Lock-in Low Fixed Interest Rate / 54%
Reduce My Monthly Payment / 24%
Reduce Time to Pay Off Mortgage / 8%
To Take Equity From House to Pay for Home Improvements / 2%
To Take Equity From House For Another Purpose / 7%
Not Applicable / 3%
Other / 2%

Low Interest Rates Driving Refinancing. More than half (54%) of those respondents who either plan on refinancing or already refinanced, said the most important reason was to "Lock-In a Low Fixed Interest Rate." Another 24% said they wanted to reduce their monthly payments.

III. ChangeWave Research Methodology

This report contains the findings from a recent ChangeWave Alliance survey on trends in tax preparation and home mortgages. The survey was conducted the week of March 31 – April 5, 2004, and a total of 999Alliance members participated.

The Alliance’s proprietary research and business intelligence gathering system is based upon the systematic gathering of valuable business and investment information directly over the Internet from accredited members.

ChangeWave surveys its Alliance members on a range of business and investment research and intelligence topics, collects feedback from them electronically, interprets and reconciles the information in a cohesive manner and converts the information into valuable quantitative and qualitative reports.

The Alliance has assembled its membership team from senior technology and business executives in leading companies of select industries. Nearly 3 out of every 5 members (58%) have advanced degrees (e.g., Master’s or Ph.D.) and 94% have at least a four-year bachelor’s degree.

The business and investment intelligence provided by the Alliance provides a real-time view of companies, technologies and business trends in key market sectors, along with an in-depth perspective of the macro economy – well in advance of other available sources.

IV. About ChangeWave Research

ChangeWave Research, of Phillips Investment Resources, Inc. is a market research intelligence network powered by thousands of accredited and organized front-line professionals – the ChangeWave Alliance.

ChangeWave is the alternative to traditional “sell-side” investment research. The company publishes ChangeWave Investing, the investment advisory service for individual investors dedicated to researching and discovering growth stocks that profit from radical change, and Weekly WaveWire, a free e-mail newsletter distributed to nearly 200,000 investors.