Should you buy a home?

by Dan Krell
© 2011

Last year I attempted to answer the question everyone was asking, “Should I buy a home in today’s economy?” (see: Is now the time to buy a home? The question continues to be as legitimate (or more so) today than it was a year ago.

The recent big surprise (or not) is the increased chatter about a double dip recession. Unlike last year’s mixed economic data and discussion of a sluggish economy, recent economic data suggest continued angst on many fronts, including housing. Unlike previous years’ economic hardships, when stimulus plans and tax cuts encouraged optimism; recent housing data may not only fail to illicit optimism, but has many experts talking about a deeper recession- or even a depression.

But there are bright spots as well!

Although we have not yet reached the levels to declare an economic depression, consider that Zillow ( reported in January of this year that the decrease in national home values from November 2010 further pushed the fifty-three month decline of the Zillow Home Value Index to 26% from the all time high in 2006. Zillow pointed out that the 26% decrease from the all time high in home values exceeds the 25.9% decline of home values between the “depression-era years” of 1928 and 1933.

Further adding to the buzz in the housing industry is the most recent S&P/Case-Shiller Home Price Indices (, released May 31st. Analyzing housing data through March 2011, the conclusion was that nationwide home prices are now where they were in 2002. Data indicated that the U.S. National Home Price Index fell 4.2% during the first quarter of this year; compared to the first quarter of 2010, the index revealed an annual decrease of home prices of 5.1%. The Washington DC region was the only city in this press release where there was a quarterly and annual increase in home prices.

Unemployment continues to be a drag on the economy. Solving this issue might very well be the key to solving the continued housing doldrums. A study conducted by the Florida Realors® (“The Face of Foreclosure”; points out the correlation between unemployment and foreclosure. The April 6th 2010 press release quoted, Florida Realtors® vice president of public policy, John Sebree, as saying “”…In most cases, it was a combination of rising living costs, unemployment or decreased pay, health issues and other factors that caused homeowners to get into trouble. Simple answers and trite political responses just don’t tell the whole story.”

Renting is the other side of the housing equation. Although renting is becoming trendy, it is also becoming more expensive. Trulia’s ( most recent rent vs. buy index of second quarter data, released April 28th, indicated that buying a home is more affordable than renting in 80% of the major cities polled! It was more expensive to buy a home compared to renting in the Kansas City, Fort Worth, and New York City regions of the country; the Washington DC region was rated as one of the areas where it was “Much Less Expensive To Buy Than To Rent.”

Home ownership is not for everyone. If you’re thinking of buying a home, consider that timing the market typically yields mixed results. A better approach to home buying is reviewing your long term plans and goals with your financial planner; as well as a keeping tabs on the local market with your Realtor®.

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Comments are welcome. 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 June 6, 2011. Using this article without permission is a violation of copyright laws. Copyright © 2011 Dan Krell.

People need a place to live: Rental properties are surging

by Dan Krell

People need a place to live. This is the mantra of many savvy real estate investors who are looking for fantastic buys on homes to use as rental properties. Real estate investors know that rental properties are looking better because markets are cyclical. Investors following the real estate market know that many people wanting to purchase a home prefer to rent during uncertain financial times.

The “MRIS Trends in Housing; Mid-Year 2008” (Metro Regional Information Systems Inc, appears to confirm what real estate investors know. The report states that potential home buyers prefer to rent while timing “their entry into the market.” Interestingly, vacancies for traditional apartment complexes rose to 3.6% (from 2.9%) in the last year, indicating that renters are choosing to rent single family homes and condos rather than a traditional apartment. The report points to home sellers converting their “homes for sale” to “homes for rent” for the increase in apartment vacancies.

The MRIS report also states that rents increased 3.1% in the last year. Unlike the rental market of several years ago, where renters were negotiating leases way below list price, real estate investors are expecting to rent housing at a premium.

How much should you pay for a rental property? Savvy real estate investors typically do not want to pay any more than 70% of retail value for their rental properties; however many set their price tolerance lower. Consulting with a Realtor can assist your analysis in how much to offer for any home.

Let’s face it, if you intend to buy at bargain prices, you will probably be purchasing the home “as-is.” Seasoned investors will account for the cost repairs to bring the home up to code in their purchase price. Consulting with a licensed contractor can assist you in determining what repairs and updates are necessary.

Buying a home at the right price is only part of the equation. When considering a rental property, investors look for a home in a prime location. For example, having a rental near a metro stop can sometimes rent faster and for more money than an equivalent rental in a secluded neighborhood.

Some investors might say that the goal of buying a rental property is to have the home “pay for itself.” This means that the rent you collect should cover the home’s mortgage, taxes, insurance, maintenance and other expenses. Consulting with a Realtor and a rental management company can assist your neighborhood rent analysis.

Make no mistake, real estate investing is risky. Success as a real estate investor is not assured. From dealing with bad tenants to carrying a vacant rental property, every investor has a horror story.

Whether you are a seasoned or novice investor, you should always do your home work and consult professionals (such as your attorney, accountant, Realtor, financial advisor) to assist you in deciding if buying a rental property is right for you. Additionally your professional network can assist in determining your risk level as well as assisting you in creating your real estate investment plan. If you decide to become a real estate investor, maintaining communication with your professional network can help you anticipate and possibly overcome any bumps in the road toward your goals.

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 October 6, 2008. Copyright © 2008 Dan Krell.

How do you know if you are ready to buy a home?

by Dan Krell

Did you know that we are in the midst of the best home buyers market in since the 1970’s? Real estate guru and national speaker, Bernice Ross (, thinks so and that’s why she proclaimed 2008 as the “best buyer’s market in thirty five years!”

Ms. Ross asserts that the combination of low interest rates and high inventory makes this real estate market prime for home buyers. She supports her claim by explaining that interest rates have not been this low since the seller’s market of several years ago (when inventory was very low) ; and previously in the 1970’s. Additionally, mortgage interest rates during the previous major home buyer markets were much higher (18 to 20% in the early 1980’s and about 11% early 1990’s).

Certainly, it may seem to be a time filled with home buyer opportunity: Housing inventory is at a level unseen for years, giving home buyers many homes to choose from as well as negotiating leverage in neighborhoods filled with homes for sale. Additionally, interest rates are relatively low making homes more affordable. Furthermore, home buyer tax incentives (including the recent tax credit of up to $7,500) as well as rising area rents may make home buying a viable alternative.

Would economic turmoil put a damper on the excitement that would otherwise be generated by “the best home buyer’s market in thirty five years?” Some financial commentators say “yes.” For example, Luke Mullins states that you should not buy a home unless you have a compelling reason to do so (, August 14, 2008). Steve Kerch of The Wall street Journal’s Market Watch (, September 24, 2008) reported that the best indicator of economic confidence is the purchase of a home.

The truth is that “the right time to buy a home” depends on the home buyer. Relying on broad sweeping statements (positive or negative) about the real estate market may not be helpful. Many personal and regional factors need to be considered and assessed. Before you decide to buy a home, you might want to examine such issues as (but not limited to) your personal and financial goals, your current financial condition, and your career outlook.

The question, “How do I know if I am ready to buy a home?” is answered by HUD’s ( “100 questions and answers about buying a new home.” If you can answer yes to the following questions, HUD believes you may be ready to buy home: Do you have a steady source of income? Have you been employed on a regular basis for the last 2-3 years? Is your current income reliable? Do you have a good record of paying bills? Do you have few outstanding long-term debts, like car payments? Do you have money saved for a down payment? Do you have the ability to pay a mortgage every month, plus additional costs? Other experts add these questions as well: how long do you intend to stay in the area, do you have emergency funds available, are you ready for the responsibility of homeownership, and do you live within your means?

In addition to consulting with your personal financial adviser and accountant, HUD recommends you attend home buyer counseling to help you determine if you are ready to buy a home.

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 October 13, 2008. Copyright © 2008 Dan Krell.

Why do people act irrationally when buying and selling real estate?

by Dan Krell © 2008

Have you wondered why so many people rushed to purchase homes in the recent historic seller’s market? Why have home buyers been scarce, even in a buyer’s market? The man with the answers is Ori Brafman. Ori Brafman has an extensive background that includes organizational speaker and consultant, professor, and writer. His new book, co-written with psychologist Dr. Rom Brafman (his brother), is called Sway: The Irresistible Pull of Irrational Behavior (Doubleday, June 2008). The book is a culmination of research that explains what compels us to act irrationally.

In a recent personal correspondence about irrational behavior in real estate, Ori offers these concepts to explain such seemingly overt irrational behaviors: loss aversion, “getting stuck in the past,” and value attribution.

Loss aversion, a concept described in Prospect Theory, describes why people focus on limiting their losses as opposed to seeking gains. Ori explains that loss aversion explains why home sellers have a hard time selling for less than their original purchase price, even when it means they could potentially lose more by waiting for the downward market to end. He explains that it is not only psychologically painful, but a shot to our ego; making some to irrationally wait for an unrealistic sale price.

This would explain why many home sellers have had a difficult time adjusting list prices in the downward market. Even when a home seller will not realize a loss, they perceive a loss based on home values from a year ago. Based on this perceived loss, home sellers will list their homes for sale at higher than market prices. This fact was validated in a research study conducted David Genesove and Christopher Mayer entitled “Loss Aversion And Seller Behavior: Evidence From The Housing Market” (published in The Quarterly Journal of Economics, 11/2001). This research used data from the Boston real estate market in the 1990’s and serendipitously found that home sellers are unwilling to list and sell for a loss.

Home buyers and home sellers alike can “get stuck in the past,” looking to buy or sell a home for a price they missed some time ago. Rather than pricing their home at a realistic price, many home sellers look to sell for a price they would have sold for a year or two ago. Additionally, this could explain why some home buyers constantly offer low ball prices for homes that have obvious higher values.

Value attribution plays a large role in how home buyers view homes they may purchase. Ori explains that a home buyer might place less value on a home that is priced less than other neighborhood homes, “even when the home meets all of their criteria.” When a home is priced “rationally,” a home buyer might wonder, “What’s wrong with this house?” Home buyers will go through the home and arbitrarily decide which features devalue the home.

Together, these concepts might explain why home buyers have been scarce in this buyer’s market. Many home buyers have placed less value in owning a home in a declining market, worrying about further market declines. Additionally, home buyers irrationally worry about unrealized losses, even when buying a home may be the rational thing to do.

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 August 25, 2008. Copyright © 2008 Dan Krell.

Being Organized Will Facilitate the Mortgage Process

by Dan Krell

Are you ready to jump into the real estate market? Maybe you already own a home but need a larger home; or are you thinking of downsizing to a condo near the town center. If you’re like the average home buyer, you’re planning to finance most of your purchase. Although the mortgage landscape has changed, many things remain the same. Whether you are a first time home buyer or a seasoned home owner, getting organized and being prepared will make the process more enjoyable.

Some home buyers have an idea of how much home they can afford, while others are unaware. Talking to a loan officer can give you an idea of mortgage rates and trends as well as how much you can afford. Putting things in perspective at this stage will shape your home search as you decide the type of home you want as well as where you want to live.

Although many things about mortgages have recently changed, qualifying is still based on your income, credit and assets. Before you talk to a loan officer, get your financial information organized so you can provide accurate information. Providing accurate information to the loan officer will allow them to provide you with an accurate price range; this will save you the time and heartache of looking at homes you cannot afford. Although mortgage rates change daily, the loan officer can guide you with any necessary corrections.

Maryland mortgage applications now require you to provide proof of your income to support your mortgage payment, so getting organized prior to talking to a loan officer is a good idea. Start your own mortgage file; your file should have your recent paystubs, W-2 statements, bank statements, 401k statement, and any other financial information you think you may need (which may include child support or disability income). Self employed individuals will need whatever documentation they can muster (including tax returns) to support their declared income.

Checking your credit report should be considered a sensitive issue as having too many credit checks within a short period of time will lower your credit score, and in some cases alter your ability to obtain a loan. Rather than having your credit checked by every loan officer you talk with, it is a good idea to request your own credit report from three credit bureaus (and place it in your mortgage file).

You are entitled to a free annual credit report from the three credit bureaus. Although many credit companies advertise “free” reports with snappy jingles, you can request your credit report directly from the three credit bureaus (Equifax, Experian, and Trans Union). Be careful, however, many web sites (even the credit bureau websites) will bombard you with offers to watch your credit as well as other credit products for a fee.

Loan officers will request your recent paystubs, bank statements, W-2’s, and your permission to check your credit. However, until you choose a mortgage lender, you may decide to protect your personal information by providing verbal information derived from your documents.

The lender you ultimately choose will require original documents as well as your authorization to check your credit. Your up-to-date file should assist the loan officer in making the mortgage process easy and enjoyable.

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 August 18, 2008. Copyright © 2008 Dan Krell.