Unpacking is part of the buying process

unpacking tips
Unpacking tips (infographic from visual.ly)

People don’t really give it much thought until they’ve already moved.  Maybe that’s the reason for a lack of information and guidance about unpacking.  I estimate that for every six articles about packing and moving, there’s probably one about unpacking.  And like buying a home and moving; there should be more thought to unpacking because it’s the first activity that makes your new digs feel like home.

Unlike packing for a move and decluttering, unpacking seems to get left out of the home buying process.  Many believe that you instinctively come home after settlement (or signing a lease) and just unload all the boxes and just begin living as you did in your previous home.  But the reality is that unpacking can be just as, if not more, overwhelming than the move itself.   And this applies to whether you’ve hired a moving company or concierge service to unpack for you, or you do it on your own.

That’s correct, you can hire someone to unpack for you.  However, just like packing house, it can get expensive.  Of course, charges vary.  However, if this is the way you decide to go – get multiple estimates from insured and bonded companies.  Once the service unpacks for you, consider taking the time to review where they stored items.  This will save you time later when you need to find something in a hurry.

Unpacking a house on your own may seem overwhelming (even with the help of friends), but don’t give in to procrastination.  Extreme procrastination can lead you to living out of moving boxes for a prolonged period.  Instead, make a simple unpacking plan and prioritize.  Although the chore of unpacking seems to be the physical aspect of unloading boxes; there can be an emotional drain of deciding where to best place and store items.

When packing your previous home, you most likely packed each room and labeled each moving box for their destination room.  And although unpacking each room in sequence may seem logical, you most likely won’t get it all done in one day.  The result can leave you frantically digging through boxes searching for items you use on a daily basis.

To avoid this trap, consider unpacking essential items first.  Having the essentials put away first will help you feel as if there is continuity.  You will find it easier going about your daily routine without disruption – even if you don’t unpack all the boxes.  Of course, it helps if you’ve marked the boxes containing essential items when you packed.  However, if you didn’t, that’s ok too.

If you’ve unpacked the essentials first, you’ll notice that you’ve become aware of the available storage spaces.  As a result, you’ve set the tone for each room, and the entire unpacking process becomes easier.  You’ll be able to go through your room priority list quicker and get through storing items where they belong with less deliberation and angst.

When unpacking essentials, focus on the kitchen and bathrooms first.  Chances are that you will need to use these rooms throughout the day as you unpack.  Then go through your priority list of rooms, unpacking the essentials.

Once the essentials are put away, you may feel at ease and in control.  You can then unpack rooms in sequence or as prioritized.  You may also decide to go through the remaining boxes at a leisurely pace.

Copyright © Dan Krell
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Lot premium value on new home

lot premium and new home
Buying a new home (infographic from jeffruttbuilder.com)

There is an ongoing debate about the lot premium.  Essentially, is there a value of paying a “premium” for a home site when buying a new home?  Certainly, the home builder is seeking to increase their profit margin.  But for a home buyer, there is a question of future value at resale.

A home builder will typically sell certain home sites within a community at a higher price, effectively increasing the price of a new home.  Some home sites are deemed to be more “valuable” because of the lot’s characteristics and/or location.  A lot premium may be charged if a home site is larger, flatter, and/or more symmetrical than others in the community.  Lots tucked away from the main road or close to common areas are typically premium priced as well.

Don’t hate the home builder for charging a lot premium on your new home.  Home builders are trying to sustain a business by recouping the cost and financial risk of land development.  Placing a premium on home sites has become a science, and research consultants typically provide data on developing home sites and pricing.

However, there is also an economic factor.  When the housing market was still reeling from the Great Recession, charging a lot premium was not common.  However, home builders added lot premiums when sales recovered.

John Burns, CEO of John Burns Consulting, wrote about the rising premiums on home sites as the new home market recovered in 2013 (Lot Premiums Are Back!; realestateconsulting.com; May 23,2013), stating “Our consulting team has noted a significant trend in the market: lot premiums are rising substantially!” Burns broke down lot premiums based on region.  And, of course, lot premiums increased according to how the region’s housing market recovered.  For example, lot premiums in Florida were about 10 percent at that time; While Southern California was trending to include the premium in the list price to help stabilize prices.  Also, the DC region’s housing market was still recovering and home builders were only charging 1 to 2 percent for a lot premium.

Burns also noted that buyer demographics can also dictate lot premiums.  At that time, it was reported that home builders in Southern California were charging a 5 percent premium based on feng shui and home site orientation.  And a 20 percent premium was charged for home sites with “good feng shui” that were located on a cul-de-sac.

The availability of buildable home sites may also dictate lot premium charges in the near future.  A recent National Association of Home Builders survey indicated a shortage of home building lots (Lot Shortages Worse Than Ever According to NAHB Survey; nahb.org; May 26, 2016).  NAHB Chief Economist Robert Dietz stated, “We have monitored lot availability for the last two decades, and it is clear that the scarcity of building lots is growing… Whether due to land use policy, geographic constraints or other regulatory constraints, the lack of lots for residential construction will have negative impacts on housing affordability in many markets.”

To understand the relative numbers, NAHB stated “…this record shortage comes at a time when new homes are being started at a rate of under 1.2 million a year. In 2005, when total housing starts were over 2 million, the share of builders reporting a shortage of lots was 53 percent…”

If you pay a lot premium on a new home, however, it is not always clear that you would be able to pass on the premium when you re-sell.  But a recent study conducted by Paul K. Asabere and Forrest E. Huffman (The Relative Impacts of Trails and Greenbelts on Home Price; Journal of Real Estate Finance and Economics; May 2009; vol 38, p408) provides some data on what you might expect: home sites close to trails, greenbelts, and greenways can demand a price premium of up to 5 percent.  A similar effect can also be found in homes with a “view” or in a cul-de-sac; as well as homes that are adjacent to a golf course, playground, tennis court, neighborhood pool.

Copyright © Dan Krell
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Credit report reforms

credit report
Credit report (infographic from dollarcents.org)

One of the main reasons you’re likely to be declined for a mortgage is your credit report.  More specifically, derogatory information contained therein.  Unfortunately, many of us are still not proactive when it comes to our credit report.  And for many, erroneous information that is foisted upon them without their knowledge affect their daily lives.

Flawed data has been a long standing issue in the credit industry.  A 2012 study conducted by the Federal Trade Commission (ftc.gov) found that “one in five consumers” disputed and corrected an error that was reported to a credit reporting agency (CRA).  A follow-up study conducted in 2015 found that “Most consumers [almost 70 percent] who previously reported an unresolved error on one of their three major credit reports believe that at least one piece of disputed information on their report is still inaccurate.”  The follow-up study recommended that CRA’s “review and improve” the dispute process, as well as increase consumer education efforts. From the FTC report:

The follow-up study announced today focuses on 121 consumers who had at least one unresolved dispute from the 2012 study and participated in a follow-up survey. It finds that 37 of the consumers (31 percent) stated that they now accepted the original disputed information on their reports as correct. However, 84 of these consumers (nearly 70 percent) continue to believe that at least some of the disputed information is inaccurate.  Of those 84 consumers, 38 of them (45 percent) said they plan to continue their dispute, and 42 (50 percent) plan to abandon their dispute, while four consumers are undecided.

The final study also examined whether consumers from the 2012 study who had their credit reports modified after disputing information on their credit reports had any of the negative information that had been removed subsequently reappear on their reports. The study found two instances of this, representing about 1 percent of these consumers.

On March 9, 2015, New York Attorney General Eric T. Schneiderman announced an agreement that was worked out with the three credit repositories (Experian, Equifax, And Transunion).  The agencies agreed to seek improvements to the credit report dispute resolution process, as well as increasing protections for consumers from false claims and reporting paid debt (such as medical bills).

As A.G. Scheiderman’s statement was released, the Consumer Data Industry Association (the trade association for the consumer data industry) announced the creation of the National Consumer Assistance Plan.  The roll-out of The Plan is to be over three years, and includes a website (nationalconsumerassistanceplan.com) where consumers and the CRAs are to interface about credit reporting news and information.  Stuart Pratt, President and CEO of the Consumer Data Industry Association, stated in a press release:

“…The nationwide consumer credit reporting companies are making important changes to their procedures that will improve their ability to collect accurate information, and we want to make sure consumers know about the new options available to them…”

Additionally, the press release included highlights of the National Consumer Assistance Plan:

Consumers visiting www.annualcreditreport.com, the website that allows consumers to obtain a free credit report once a year will see expanded educational material.

Consumers who obtain their free annual credit report and dispute information resulting in modification of the disputed item will be able to obtain another free annual report without waiting a year.

Consumers who dispute items on their credit reports will receive additional information from the credit reporting agencies along with the results of their dispute, including a description of what they can do if they are not satisfied with the outcome of their dispute.

The credit reporting agencies (CRAs) are focusing on an enhanced dispute resolution process for victims of identity theft and fraud, as well as those who may have credit information belonging to another consumer on their file, commonly called a “mixed file.”

Medical debts won’t be reported until after a 180-day “waiting period” to allow insurance payments to be applied. The CRAs will also remove from credit reports previously reported medical collections that have been or are being paid by insurance.

Consistent standards will be reinforced by the credit bureaus to lenders and others that submit data for inclusion in a credit report (data furnishers).

Data furnishers will be prohibited from reporting authorized users without a date of birth and the CRAs will reject data that does not comply with this requirement.

The CRAs will eliminate the reporting of debts that did not arise from a contract or agreement by the consumer to pay, such as traffic tickets or fines.

A multi-company working group of the nationwide consumer credit reporting companies has been formed to regularly review and help ensure consistency and uniformity in the data submitted by data furnishers for inclusion in a consumer’s credit report.

An improved credit reporting industry was to take another leap forward with the introduction of H.R. 5282 – Comprehensive Consumer Credit Reporting Reform Act of 2016 (congress.gov).  Introduced in Congress May 19, 2016, the bill is a comprehensive restructuring of the credit reporting process.  Among the many details, the bill also: calls for a new dispute process; “meaningful” disclosures about resulting investigations; limits credit reports for employment purposes; requires removal of items that were a result of identity theft, fraud and other crimes; and transfers authority from the FTC to the CFPB on “procedures for reporting identity theft, fraud, and other related crime.”  The bill was referred to committee, where it appears to have stalled.

Your credit report has become akin to your “financial soul.”  Some of its uses include assisting entities in deciding whether to employ you, lend to you, or extend you credit.  It has even become vogue for individuals to check someone’s credit report before going out on a date!

Financial experts and government agencies recommend you become proactive and check your credit report annually, and dispute inaccurate information.  Annualcreditreport.com is the only “authorized” website where you can receive a free credit report annually from the three repositories.  The site also contains information on protecting your identity, and links to the FTC and CFPB for topics such as how to maintain good credit, and credit repair.

Copyright © Dan Krell
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Homeownership evolving

homeownership and American Dream
Homeownership and the American Dream (from SolomonMcCown.com and bulldogreporter.com)

Homeownership wasn’t always part of the American Dream.  The American Dream originated as a concept about increasing one’s quality of life, which was well established before the Country’s independence from Britain.  John Kenneth White and Sandra L. Hanson discussed the history of the American Dream in the introduction to their edited collection “The American Dream in the 21st Century” (2011; Temple University Press).  They describe the American Dream as being fundamental to the Declaration of Independence.  But the, the idiom “American Dream” was not in our lexicon until the twentieth century.  Although James Truslow Adams has been credited for the phrase “American Dream;” White and Hanson attribute its first use to Walter Lippmann, who used it in his 1914 book “Drift and Mastery.”  Adams’ 1931 work “The Epic of America” was the first widely accepted promotion of the phrase “American Dream.”

Homeownership most likely became a part of the American Dream as the middle class developed and rose in economic prominence.  However, it probably wasn’t until the 1930’s when homeownership and American Dream were associated; when the Federal Housing Authority was established to make owning a home affordable.  Before the FHA, buying a home meant signing up for a short term mortgage with a high down payment; which made renting the only option for most.

Homeownership can also be gauged by the health of the middle class.  As the Amercican middle class fares, so does homeownership.  This is evident from the effects of a recession; when the middle class takes the brunt of an economic downturn, homeowner rates typically suffer as a result.

Homeownership Rates
Homeownership Rates (from census.gov)

Homeownership rates have steadily decreased from a peak approaching 70 percent just before the housing crash, to the current rate of 63.5 percent (census.gov). From the Census October 27th press release:

“National vacancy rates in the third quarter 2016 were 6.8 percent for rental housing and 1.8 percent for homeowner housing. The rental vacancy rate of 6.8 percent was 0.5 percentage points (+/-0.4 percentage points) lower than the rate in the third quarter 2015 and not statistically different from the rate in the second quarter 2016. The homeowner vacancy rate of 1.8 percent was not statistically different from the third quarter 2015 or second quarter 2016 rates.

The homeownership rate of 63.5 percent was not statistically different from the rate in the third quarter 2015 (63.7 percent) and 0.6 percentage points (+/-0.4 percentage points) higher than the rate in the second quarter 2016.”

The decline has been attributed to shrinking middle class, changing demographics, and the residual economic malaise of the Great Recession.  Although the declining homeownership rate seems as if it is a recent phenomenon, it’s actually cyclical.  Anthony DePalma reported for the New York Times about the declining homeownership rate in the post-recession climate of the 1980’s (IN THE NATION; Why Owning a Home Is the American Dream; nytimes.com; September 11, 1988).

The recent research of the future of homeownership by Spader, McCue, and Herbert projected three scenarios (Homeowner Households and the U.S. Homeownership Rate: Tenure Projections for 2015-2035; Joint Center for Housing Studies of Harvard; working paper, 2016).  The low scenario is that homeownership rates continue to decline to a rate of 60.6 percent through the year 2020.  The high scenario is that homeownership rates will once again increase through the year 2025 and peak around 65 percent.  However, they also provide for a scenario where homeownership rates stabilize and maintain at current levels:

The base scenario, which holds homeownership rates constant at their 2015 levels, shows that projected changes in the demographic composition of U.S. households by age, race/ethnicity, and family type will largely offset one another, affecting the homeownership rate only minimally through 2035. Under this scenario, projected household growth will add 8.9 million homeowner households and 4.7 million renter households by 2025, and 15.7 million homeowner households and 9.4 million renter households by 2035. Alternatively, the low and high scenarios produce a range for the national homeownership rate of 60.7 percent to 64.8 percent by 2035, resulting in different levels of growth in homeowner and renter households.”

They concede that the trajectory of homeownership is complex, stating:

“… the homeownership rate’s actual trajectory will depend on how quickly the foreclosure backlog clears, how many foreclosed households reenter homeownership, and whether young households’ slowed rates of homeownership entry persist in future years. Additionally, any major changes in the broader economy, housing finance system, or households’ attitudes toward homeownership may also influence future homeownership rates to the extent that they alter households’ demand or access to homeownership…”

Home owners are more inclined to maintain their homes and neighborhoods, as well as being invested in protecting their home and community; which may account for lower incidences of reported crime. Besides stabilizing communities, many of these benefits may also account for positively affecting home values.

The benefits of homeownership have been well documented and discussed by Research Economist Selma Hepp for the National Association of Realtors®:

“In addition to tangible financial benefits, research has shown that homeownership brings substantial social benefits for families, communities, and the country as a whole. Because of these societal benefits, policy makers have promoted homeownership through a number of channels. Homeownership has been an essential element of the American Dream for decades and continues to be so even today. Some of the documented social benefits include:

  • Increased charitable activity
  • Civic participation in both local community and national issues (including voting)
  • Greater awareness of the political process
  • Higher incidence of membership in voluntary organizations and church attendance
  • Greater social capital generated
  • Greater attachment to the neighborhood and neighbors
  • Lower teen pregnancy by children’s living in owned homes
  • Higher student test scores by children’s living in owned homes
  • Higher rate of high school graduation thereby higher earnings
  • Children more likely to participate in organized activities and have less television screen time
  • Homeowners take on a greater responsibility such as home maintenance and acquiring the financial skills to handle mortgage payments and those skills transfer to their children
  • Lower teenage delinquencies
  • General increase in positive outlook to life
  • Homeowners reported higher life satisfaction, higher self-esteem, happiness, and higher perceived control over their lives
  • Better health outcomes, better physical and psychological health
  • Tremendous wealth gains for homeowners under normal housing market conditions (outside of the terrible bubble/bust housing years)
  • Homeowners not only experience a significant increase in housing satisfaction, but also obtain a higher satisfaction even in the same home in which they resided as renters
  • Family financial situation and housing tenure during childhood and adulthood, impacted one’s self-rated health (in particular, the socioeconomic disadvantaged indicated by not being able to save any money or not owning or purchasing a home are less likely to self-rate their health as excellent or very good).
  • Less likely to become crime victims
  • Homeowners better maintain their homes, and high quality structures also raise mental health -renter-occupied housing appreciates less than owner-occupied housing
  • Housing prices are higher in high-ownership neighborhoods
  • Maintenance behavior of individual homeowners is influenced by those of their neighbors”

As the American Dream continues to evolve, so does the goal for homeownership.  Although many have not been recently swayed by benefits, the cycle may once again reveal the true value of homeownership.

Copyright © Dan Krell
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35 years of home buying changes

home buying changes
Years of home buying changes? (infographic from keepingcurrentmatters.com)

This week’s release of the National Association of Realtors® Annual Profile of Home Buyers and Sellers marks the 35th year of NAR’s analysis and description of home buyer and seller behaviors and attitudes.  You may not remember what it was like in 1981, but the country was coming out of a deep recession.  The economy was still scarred with double-digit unemployment, inflation and interest rates.  The 35th issue makes us think about home buying changes over the years.

According to the US Census Bureau (census.gov), the median price for a new home in 1981 was $68,900, while in 2010 the average new home price was $221,800.  Freddie Mac’s (freddiemac.com) data indicates that the average mortgage interest rate in 1981 was 16.63 percent, and 4.69 percent in 2010.  Surprisingly, the cost of housing (when financing 100 percent of the sale price) has only increased about 17.5 percent from 1981 to 2010!

People want their space and privacy.  According to the American Enterprise Institute (aei.org), the median square feet per person in a home in 1981 was about 550sf, while in 2014 it was 987sf.  This expansion in personal space was expressed in the home size.  The median size of a home in 1981 1,550sf, while 2010 it was 2,169sf (according to the Census Bureau).  Also consider that the typical home of 1981 only had one and a half bathrooms, and the expectation today is that a home should have at least two and a half bathrooms.

An October 18th news release from the NAR (Five Notable Nuggets from NAR’s Home Buyer and Sellers Survey’s 35-Year History; realtor.org) provided some insight into how the housing market has changed through the years.  One noticeable factor is the reduced number of first time home buyers entering the market due to underemployment, student debt, lack of down payment, or delaying family formation.  Last year’s percentage of first time home buyers dropped the lowest rate since 1987; and “according to the U.S. Census Bureau, the homeownership rate for 18-35 year-olds is currently at 34.1 percent, the lowest level in records dating back to 1994.”

It’s becoming apparent that real estate agents are not being replaced by the internet.  Although a majority of home buyers use the internet to assist them with the home buying process, the NAR reported that 90 percent of home buyers and sellers surveyed for this year’s profile worked with a real estate agent.  As a result, for-sale-by-owner transactions were at the lowest level ever (FSBO transactions peaked during 2003-2004).

The home buying process now takes longer than it used to.  Putting aside recent changes to the mortgage process, the 2016 Home Buyer and Seller Profile brings attention to the amount of time a home buyer needs to find a home.  According to the NAR, the average time to find a home was relatively unchanged from the 1980’s to about 2007; which about seven to eight weeks.  The duration of the home search peaked at twelve weeks from 2009 to 2013.  However, since then the average time needed to find a home is about ten weeks.  The increased search time is due to a number of factors.  Brisk sales combined with periods of low inventory has not provided home buyers with much of a choice from which to select.  Not to mention an unprecedented amount of available information that has created a savvy home buyer.

Copyright © Dan Krell

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