The decline of today’s housing stock

by Dan Krell © 2013
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Is the decline of today’s housing stock a concern or an opportunity?

While taking part in a recent home inspection, the home inspector unexpectedly began to talk about the concern for today’s housing stock. After listening intently for a short time, I realized that his dissertation about the quality of existing homes was not just his opinion or home inspectors as a group, but rather a consensus of growing concern among housing experts of the condition of many older homes.

The issue that the home inspector pointed out is that much of the existing housing stock is aging without significant necessary maintenance or repair. Because the lifespan of many of home systems (including roofs and HVAC) range from 15 years to 30 years, as well as structural materials can have an average lifespan of 40 years; he surmised that homes that exceed thirty years of age are at significant risk.

As a home inspector, this gentleman has a unique perspective about how people take care of their homes; and unfortunately, many home owners have put off important and necessary maintenance and/or system replacements such that the home’s condition is considerably affected. And although he didn’t attribute the deteriorating housing stock with the recent recession, it is assumed that the recession contributed to the housing stock’s declining quality – if not accelerated it.

A February 2013 article by Kermit Baker for the Harvard Joint Center of Housing Studies entitled “The Return of Substandard Housing” highlighted the relative considerable reduction in maintenance spending by home owners during the Great Recession. He stated that “improvement spending” decreased 28% between 2007 and 2011, which essentially “erased” such spending during the housing boom (housingperspectives.blogspot.com).

Mr. Baker concluded that this crisis needs attention, stating; “The longer-term fate of the current slightly larger number of inadequate homes is unknown. Many of these homes likely will be renovated to provide affordable housing opportunities. However, many may not recover without extra help. Given the extraordinary circumstances that many homes have gone through in recent years, particularly foreclosed homes that often were vacant and undermaintained for extended periods of time as they worked their way through the foreclosure process, they may be more at risk than their inadequate predecessors…

Considering the number of re-sale contracts that are falling out because of home inspections, this all makes sense. New home sales aside, many home buyers want “turn-key” homes that are updated with relatively new systems. It seems as if that home buyers don’t want to be burdened with major maintenance costs for the first five years of ownership. Some of the costly considerations that can put off home buyers are replacing a roof, windows, siding, and/or HVAC. Additionally, hazardous materials that can be commonly found in older homes (such as asbestos and lead paint) are becoming an increasing concern with first time home buyers.

The reason is uncertain, but during the “go-go” market of 2004-2006, a home’s condition didn’t seem to be as much of a concern for home buyers as it is today. However, one reason may be that during that period home equity loans were relatively easier to obtain to finance renovation projects.

The result of the deteriorating quality of the existing home stock may be that we may see declining values in homes requiring the most attention; such homes may either be renovated by home buyers, or might be razed to make way for a new home.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published the week of June 10, 2013 (Montgomery County Sentinel). Using this article without permission is a violation of copyright laws. Copyright © 2013 Dan Krell.

March 21, 2013June 29, 2019

Renovate your home with FHA 203k

If you’re like many home buyers, you’re probably looking for a home that is “turnkey” or an updated home that is ready to move right in. However, since inventory is tight, competition can get intense. But rather than passing on the “diamond in the rough,” consider the FHA 203k.

The FHA 203k is HUD’s rehabilitation loan. The “203k” actually refers to the section within the National Housing Act that provides HUD with the ability “…to promote and facilitate the restoration and preservation of the Nation’s existing housing stock;” in other words provide mortgages to renovate and rehabilitate existing homes. Although the program is not allowed to provide for “luxury” upgrades (such as hot tubs), the program may be used “…to finance such items as painting, room additions, decks and other items…”

If you’re purchasing a home that is not a total rehab project, there is a streamlined version of the program that can assist you to purchase the home and provide additional funds (up to $35,000) for improvements and upgrades. The FHA 203k-streamline is a “limited loan program” designed to provide quicker access to funds so your home move-in ready relatively quickly.

The “203k” process is relatively straight forward. After identifying a home, you should consult your 203k lender and consultant about the feasibility of a FHA 203k. A project proposal is prepared detailing a cost estimate for each repair/improvement. During loan underwriting, the appraisal is completed to determine the value of the home after the proposed repairs/improvements are completed. If the mortgage is approved, the home is purchased with the loan and the remaining funds are placed in escrow to pay for the project.

Much like a typical mortgage, you must qualify for the program by meeting underwriting standards for borrowers. However, unlike the typical mortgage, additional underwriting requirements include review of architectural plans and repair estimates (materials and labor) from licensed contractors. HUD approved consultants/inspectors examine and evaluate the project’s progress to ensure work is completed and compliant with HUD standards. Funds for the repairs/renovations are released in draws to ensure the work is completed as intended as well as meeting all zoning, health and building codes.

Of course, the home must also meet eligibility guidelines. The home: must be one to four units; must be at least one year old; and must meet neighborhood zoning requirements. The program allows for major rehabilitation on homes that have been razed provided that the foundation still exists.

But what if you’ve decided to renovate your home rather than move? The FHA 203k allows for home owners to make renovations, updates, and sometimes additions. The possibilities seem endless (as long as your vision stays within the loan limits). Besides painting and updating kitchen and bathrooms, you could possibly even expand your existing house with an addition. The FHA 203k even allows for many “green” upgrades to make your home more efficient.

FHA guidelines have been revised in recent years, and may undergo further revisions. It is important for home buyers and others who are interested in the FHA 203k to consult with an approved FHA lender for borrower and home qualifying guidelines, loan limits and 203k acceptable improvements. Additional information (including a list of lenders) can be found on the HUD website (HUD.gov).

Original published at https://dankrell.com/blog/2008/09/19/fha-203k-renovation-loans-are-still-available/

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By Dan Krell

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws. Copyright © Dan Krell.

January 4, 2012November 11, 2012

What’s the return on your investment?

by Dan Krell
© 2012
DanKrell.com

If you’ve been wavering over the decision to moving into a new home versus renovating your current home; or maybe you’re planning a sale this year and thinking of making improvements to improve the home’s appeal- here’s a resource to help. According to the Remodeling 2011–12 Cost vs. Value Report (www.costvsvalue.com), you can get an idea of how much return on your investment you might get from some of the most popular renovation and addition projects that people undertake.

The 2011-2012 Cost vs Value Report, published annually by Remodeling Magazine, is now available and compares the top remodeling projects and the value that you might recoup at resale. The Cost vs Value ratios were collected for major cities/regions across the country. While project costs were obtained from a construction estimates database compiled by Home Tech Publishing, the project resale values were obtained through a National Association of Realtors® survey of appraisers, agents and brokers.

It is noted that a project Cost vs Value ratio is typically higher in “hotter” real estate markets, and can sometimes exceed 100% (recouping more than was spent on the project at resale). This idea is consistent with the annual Trends in Cost vs Value, which indicates that the average return on investment was higher when the housing market was at the peak in 2005. Of course a major reason for decline in the Cost vs Value ratio from the peak has been the retreat of home prices nationwide. There is speculation that since the national ratio decreased less this year than recent years, the housing market may be bottoming out.

Besides differences in local home prices, differences in regional Cost vs Value ratios can also be attributed to variances in labor and materials costs. Some experts point to a glut of construction workers who are seeking work as a reason for decreased labor costs in some areas; while material costs have not changed much or have become more expensive.

The Cost vs Value Report groups the Washington DC area in the South Atlantic region, which was ranked as the third highest Cost vs Value ratio out of nine regions. The South Atlantic region averaged a ratio of 67.3%, while the highest performing region was Pacific with a ratio of 71.3% was and the lowest performing region was the West North Central with a ratio of 49.5%.

Enough of the technical stuff…
The top Cost vs Value ratio midrange job for the Washington DC area is a garage door replacement, which is estimated to recoup about 93.2% of the cost at resale; followed by a wood deck addition, which is estimated to recoup about 91.3% of the cost at resale (compared to a composite deck addition which is estimated to recoup only 78.8% of the cost).

The top “upscale” project is a fiber-cement siding replacement, which is estimated to recoup 89.7% of the cost at resale (compared to foam backed vinyl siding, which is estimated to recoup only 78% of the cost). The “upscale” garage door replacement is estimated to only recoup 81.4% of the cost (compared to the replacement described above).

Additional projects and descriptions of the projects with costs can be viewed in the Cost vs Value Report. The full Washington DC area renovation/addition Cost vs Value report can be downloaded at costvsvalue.com.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of January 2, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

May 21, 2010October 5, 2019

Should I stay or should I go?

Many home owners are content to stay put in their homes. Talking to home owners seeking larger spaces, many are just not convinced they need to move. This is more of a phenomenon for home owners who already traded in their “starter homes.” For many of these home owners, planning expansions combined with interior design to create functional and large spaces is an alternative to (once again) engaging the process of selling and purchasing real estate.

Expanding a home can be accomplished in a variety of ways; homes can be expanded vertically and/or horizontally. In some cases, home owners make major renovations such that the home style is dramatically changed.

To build additions, expansions, or total renovations, consulting with licensed professionals is a necessity. Some home owners decide to hire independent architects and contractors, while others hire a design-build firm that has all the necessary talent “in-house.”

Weighing the options to expand or move can include financial and personal considerations. Home owners might consider the financial aspects that may include (among other items) the cost of the move (including Realtor commissions, taxes, lender fees), as well as differences in mortgage payments as compared to the cost of the expansion. Personal considerations may include thoughts of a home’s location; for example: some home owners find it difficult to leave a neighborhood that has been their home for many years, while others say moving would make their commute to work an inconvenience.

More information about home renovation/expansion as well as the design-build concept can be obtained from the Design-Build Institute of America (dbia.org) and the Mid-Atlantic Chapter of the Design-Build Institute (dbia-mar.org). The Maryland Home Improvement Commission offers useful consumer information and advice (www.dllr.state.md.us/license/mhic/mhiccon.shtml) on home improvements.

February 26, 2008November 23, 2021

Thinking of updating? Go Green!

by Dan Krell
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If you are thinking of updating your home- think green. As we are increasingly becoming environmentally conscious, home buyers are as well. As the cost of energy continues to increase, home buyers are increasingly becoming aware of energy saving devices within homes, including Energy Star rated products and environmentally friendly materials.

Most of us are familiar with the Energy Star logo on appliances; however, Energy Star ratings or recommendations can also be found on windows, lighting fixtures/light bulbs, HVAC equipment, hot water heaters and insulation. Home improvement recommendations from Energy Star can save a home owner up to 31% in energy costs! Do you think that saving on energy costs would be a selling point to a potential homebuyer? You bet it would!

Energy Star (energystar.gov) is a jointly sponsored program through the United States Department of Energy and the United States Environmental Protection Agency. The program began in 1992 by voluntarily labeling energy efficient items. Although computers and monitors were the first items to be labeled, the Energy Star logo is now seen on household, office, and commercial items from fifty categories. On the website, Energy Star provides assessment tools for homeowners in determining the efficiency of their homes as well helping understand what needs improvement.

To make the home more appealing to home buyers, the first items that a home owner thinks of replacing are the kitchen appliances and the washer/dryer. Although high efficiency appliances typically cost more, Energy Star states that the money saved on energy costs will more than offset the cost of an energy star rated appliance. Because Energy Star rated appliances use up to 50% less energy than standard appliances, it is estimated that the equivalent of 1.7 million acres of trees would be planted if ten percent of American households use Energy Star rated appliances.

Additionally, if your furnace is more than ten years old, Energy Star recommends that a newer high efficiency furnace be installed. Recommended efficiency ratings by Energy Star are 90% Annual Fuel Utilization Efficiency (AFUE) for a gas furnace and a minimal Seasonal Energy Efficiency Ratio (SEER) of 13 for central air conditioning units. However, if your ductwork leaks it reduces the HVAC efficiency, so it is recommended that leaking duct work be sealed. Additionally, adding a programmable thermostat may save an additional $150 a year.

As your hot water heater uses about one third of a home’s energy costs, replacing it to a more efficient model can reduce the overall energy bill. Hot water heater efficiency is rated by Energy Factor (EF). Depending on the size of the hot water heater, the recommended EF can vary. Newer tankless models heat water as you need it and thereby can save you even more.

Other ways to make your home greener and energy efficient, besides using high efficiency and Energy Star rated appliances and systems, include: sealing air leaks around windows and in basements/attics; ensuring that your home is properly insulated in the walls, attic, and basement; and replacing light bulbs to energy efficient bulbs. Although not all appliances are Energy Star rated, the Department if Energy has a guide to making your home energy efficient at: www1.eere.energy.gov/consumer/tips/index.html.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of February 11, 2008. Copyright © 2008 Dan Krell.

by Dan Krell © 2013 Google+ DanKrell.com

Is the decline of today’s housing stock a concern or an opportunity?

by Dan Krell © 2013
Google+
DanKrell.com