Negative equity stats likely erroneous

negative equity
What is a short sale (infographic from lender411.com)

Before the Great Recession, there was the foreclosure crisis of 2007. That was the year that the housing bubble popped and home negative equity soared. Many home owners negotiated with their lenders to keep their homes, while others lost their homes to foreclosure. The Mortgage Forgiveness Debt Relief Act of 2007 was one of the first measures to assist distressed homeowners during the financial crisis. The Act initially was to end in 2009 but has been extended annually. The Act was recently retroactively extended for 2017.

The purpose of the Act was to address tax liabilities that distressed homeowners faced when they tried to save their homes. Because debt forgiveness is typically considered taxable income, a mortgage balance reduction via mortgage modification or short sale would have resulted in a tax bill to a homeowner who was already experiencing a financial hardship.

Recent home equity gains in the housing market should help many home sellers who would have otherwise needed a short sale. Highlights from CoreLogic’s Q4 2017 Home Equity Report (corelogic.com) indicated that about 4.9 percent of mortgaged homes have negative equity (which is a huge improvement from the almost 31 percent reported in 2012 by Zillow’s Negative Equity Report). Additionally, CoreLogic reported that the national average of home equity gained by homeowners over the past year was in excess of $15,000. However, there is disparity in home equity growth by region.

Dr. Frank Nothaft, chief economist for CoreLogic stated:

“Home-price growth has been the primary driver of home-equity wealth creation. The CoreLogic Home Price Index grew 6.2 percent during 2017, the largest calendar-year increase since 2013. Likewise, the average growth in home equity was more than $15,000 during 2017, the most in four years. Because wealth gains spur additional consumer purchases, the rise in home-equity wealth during 2017 should add more than $50 billion to U.S. consumption spending over the next two to three years.”

The National Association of Realtors testified on March 14th to the U.S. House Ways and Means Subcommittee hearing on “Post Tax Reform Evaluation of Recently Expired Tax Provisions” to make the Mortgage Forgiveness Debt Relief Act permanent. In his testimony, Realtor Barry Grooms discussed the plight of many homeowners who are surprised to find that they are upside-down on their mortgage despite national home price gains.

Grooms made an argument why the Mortgage Forgiveness Debt Relief Act should be permanent.  The Act has been retroactively extended each year in recent years leaving many short sellers “sweating it out” until the end of the year.  Part of the decision-making process for a short sale is a potential tax liability. Many home sellers take the chance that the Act will be renewed retroactively. But others do not want to take the chance of incurring a large tax liability.

Negative equity statistics are likely to be erroneous. The number of homes with negative equity is probably under-represented due to deferred maintenance.

Yes, home prices have significantly increased, which has grown home equity. But the statistics for home equity assume that all homes are worth “retail value.” The retail value of a home is the full price a home can sell. In today’s market the home must be in better-than-average to excellent condition to sell for retail value.  We don’t know the real value of any home until it’s sold.

In his testimony, Grooms touched upon a number of issues why homeowners are selling for less than they owe. However, not addressed by Groom is the number one reason why homeowners are under-water and why many home sellers need to sell via short sale. Property condition. The property condition crisis was highlighted in a February 2013 article by the Harvard Joint Center of Housing Studies entitled “The Return of Substandard Housing.” The lack of updates and/or deferred maintenance in a home can significantly decrease its value.

Copyright© Dan Krell
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Insurance claim after storm

insurance claim
Storm safety guide (infographic from ameriprise.com)

After enduring the recent twenty-four hours of near hurricane winds, many home owners are making repairs to their homes.  Many are reporting storm damage claims to their insurance companies.  Anyone who has made an insurance claim to repair their home knows that it can be ordeal.  But you can make the process easier if you know what to do.

When making an insurance claim, the Maryland Insurance Administration recommends that you contact your insurance agent or company immediately to report damage.  Prepare a detailed inventory of all damaged or destroyed property, to provide to the adjuster and for your records.  It is recommended that you take pictures or video of the damage for documentation and to help the insurance company’s investigation.  If emergency repairs are required, keep all receipts.  It’s important to only make necessary repairs, and to contact your insurance company before making permanent repairs.  You can view the Maryland Insurance Commissioner’s video on “Filing a Weather-Related Claim” for additional information and tips about your homeowners insurance (youtu.be/XywD4mdU1q8).

Before you make a claim, check with your insurance company about your deductible, policy coverage, and how they will pay-out the claim.  If total cost of the repair is approximately, or slightly more than, your deductible, making a claim may not be worth the trouble.  Your homeowners policy may also limit repairs to only the damaged areas, resulting in mismatched roof or siding.  If your mortgage company has to endorse the insurance check, contact the mortgage company to engage the process and expect a delay in reimbursement or contractor payment.

Making an insurance claim may also have consequences on your insurance premiums and future applications.  Much like credit reports that help creditors make decisions about extending credit, there are reports that provide the same to insurers.  These reports help underwrite insurance policies.  The “CLUE” report is a history of your insurance claims for the last seven years.  A CLUE report can exist for you personally, as well as your home.  Although the CLUE report has taken the public spotlight over the last decade, the A-PLUS property loss report is also popular with insurers.

Much like checking your credit report annually, the Maryland Insurance Administration recommends that you annually review your CLUE and A-PLUS reports.  The reports contain a detailed history of insurance claims for you and your property, as well as details about damage to your home.  Knowing what is contained in the reports may help you understand how an insurance company views your and your home’s insurance risk.  This can affect your insurance policy acceptance, limitations, and/or premiums.  And like credit reports, you can dispute any errors on the CLUE and A-PLUS reports.  The MIA website offers a list of contacts to help you obtain these reports (insurance.maryland.gov/Consumer/Pages/CreditandPropertyLossHistoryReports.aspx).

It’s not uncommon to hear from contractors after the storm (verify contractor license).

The MIA issued a consumer advisory regarding what contractors can and cannot do:

What contractors can do:
-Prepare an estimate of the loss.
-Discuss the estimate with their customer.
-Answer questions the insurance company has about the estimates.

What contractors cannot do, unless they are licensed as a public adjuster by the Maryland Insurance Administration:
-Investigate, appraise, evaluate, give advice or assist their customer in adjusting a claim.
-Prepare the insurance claim for their customer.
-Negotiate the claim with the insurance company on their customer’s behalf.
-Advise their customer on the insurance policy’s coverage.
-Advertise or provide written materials that they can negotiate or investigate a claim on their customer’s behalf.

If the hassle of filing a claim is too much for you, you might consider hiring a Public Adjuster.  The MIA describes the Public Adjuster as, “…an insurance claim adjuster who, for compensation, acts as an advocate for the policyholder in appraising and negotiating a first party property insurance claim under a property and casualty policy that insures the policyholder’s real or personal property…”  The Public Adjuster must be licensed by the MIA and enter into a contract with the policy holder, as well as provide disclosures.   Although a convenience, your insurance company is not obligated to accept the Public Adjuster’s claim.

The MIA states that a Public Adjuster must:

-be licensed by the Maryland Insurance Administration;
-prior to entering a contract with the policyholder, provide the policyholder with an explanation of the types of adjusters involved in the claims process and the insured’s rights to communicate directly with the insurer or its agents about settlement of the claims process and obtain the policyholder’s signature on the form;
-keep financial and business records and establish a separate escrow account for the policyholder’s proceeds.
-provide the policyholder with a written contract disclosing:

a.the terms of the contract;
b. the right to rescind or cancel the contract within 3 business days of signing;
c. that out-of-pocket expenses incurred by the Public Adjuster and approved by the insured will be reimbursed out of the insurance proceeds;
d. any compensation the Public Adjuster is to receive for services; and
e. the disclosure of any direct or indirect financial interest that the Public Adjuster or any immediate family member has with any other party who is involved in any aspect of the claim, including but not limited to the ownership of, or any compensation expected to be received from, any construction firm, salvage firm, building appraisal firm, motor vehicle repair shop, or any other firm that provides estimates for work or performs any work in conjunction with damages caused by the insured loss on which the public adjuster is engaged; and
f. the insured’s rights under the Maryland Consumer Protection Act.

 

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

In the unlikely event of nuclear war

Preparedness can mitigate personal disaster in case of nuclear war
Preparedness can mitigate personal disaster in case of nuclear blast (infographic from cdc.gov)

While a nuclear detonation is unlikely, it would have devastating results and there would be limited time to take critical protection steps.  Despite the fear surrounding such an event, planning and preparation can lessen deaths and illness…”  This was the introduction to a highly anticipated Centers for Disease Control (cdc.gov) Grand Rounds on the health response to a nuclear detonation.  Unfortunately, the January 16th topic “Public Health Response to a Nuclear Detonation” was shelved to discuss the current flu epidemic.  Home owners want to know how to protect their homes and family in the unlikely event of nuclear war.

Living just outside Washington DC, it feels as if the anxiety for such as disaster has increased in recent months.  Many of you might wonder if there is anything you can do to save your homes and your families in the event of a nuclear war.  Like other potential disasters, preparedness can help mitigate personal disaster.

I had the opportunity to correspond with the Outreach Coordinator for Montgomery County Office of Emergency Management and Homeland Security, Joe Corona, CEM.  When asked if the county has a plan in case of a nuclear war, he stated “We’ve taken a look at what we would need during the unlikely scenario of a nuclear attack (i.e. plume modeling, evacuation planning, public messaging, recovery planning, etc.), and applied them to multiple situations, so that in the unlikely event of a nuclear attack, we’re able to look at the priorities and provide the most effective response that we can.”

Corona described the Montgomery County’s Emergency Operation Plan as an “all hazards framework” that is able to prepare, respond and recover from an incident “regardless of the type of event.”  He added, “Our focus is responding to community needs effectively regardless of the event, and to be able to quickly increase or direct resources in order to provide the maximum benefit to the community, with life safety always being the number one priority.”

In this unlikely scenario, what can you do to protect your home and family?

Prepare by creating a plan, and building an emergency kit.  Corona suggests tapping resources from agencies such as Ready.gov, The American Red Cross, Department of Homeland Security, Environmental Protection Agency, etc. to help you with your plan.  He recommends that you think about areas in your home that provide the best shielding from outdoor elements, and to “take steps now to prepare to shelter in place for longer periods of times.”  Corona suggests that you prepare at least three days of emergency supplies. However, in the unlikely case of nuclear war, you probably need to plan for “longer periods.”

Ready.gov (ready.gov/nuclear-blast) provides information on what to do before, during and after a nuclear blast.  Preparedness recommendations include building an emergency kit, make a family emergency plan, as well as identifying any designated fallout shelters in your community, and/or make a list of potential shelters near home, work and school.   “During periods of heightened threat,” you should have at least a two week emergency supply.

Corona recommends staying informed through Alert Montgomery (alert.montgomerycountymd.gov), noting that your chance for survival increases if you can act quickly.  “Alert Montgomery is the official emergency communications service for Montgomery County, MD. During a major crisis, emergency or severe weather event, Montgomery County officials can send event updates, warnings and instructions directly to you on any of your devices.

Check your homeowners or renter’s insurance coverage.  He stated, “In our responses, those who have insurance require so much less of the limited government resources and have tremendously more options through ‘loss of use’ provisions to seek alternate accommodations.  Photographing pre-conditions, keeping policy info in your go kit [emergency kit], and notifying the insurance company early after events go a long way to promoting recovery for the individual and recouping any losses.”

The Montgomery County OEMHS is a rich source of information on preparedness for disasters, including the unlikely event of a nuclear war. Their outreach personnel can answer your questions about staying informed, making a plan, building an emergency kit, as well as getting involved in the community (www.montgomerycountymd.gov/OEMHS/hazards/tech/radiological.html).

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Keeping New Year’s home resolution

home resolution
New Year’s home resolution (infographic from lightstream.com)

Your home is an extension of your persona. The condition of your home impacts how you feel. So, what better way to start the new year than making a New Year’s home resolution to improving your living space?

There is disagreement about the need for and impact of New Year’s resolutions.  Many believe that making a conscious and purposeful declaration to better your life can get you on the right path.  However, many mental health professionals believe that making resolutions can be a set up for failure and disappointment if your expectations are too high.

Making a New Year’s home resolution can be achievable if you make it sensible  and meaningful.  Decide on the goal and make a plan detailing how you will accomplish it.  Ask yourself how the project will improve your life.  Sensory prompts, such as a picture of a clutter free family room or a carpet sample, can help you stay focused on the goal and keep you motivated.  You don’t have to go it alone either.  Consider hiring a professional.  If you decide to go the Do-It-Yourself route, make it a bonding opportunity by enlisting friends and/or family to assist you.

Whether you hire a professional or not, you need a plan on how you will actualize your home project.  It’s good to be ambitious with your New Year’s home resolution, but don’t fall into the trap deciding the project can be completed in one or two days.  Instead, be realistic.  After all, your daily routine is probably busy, if not hectic.  Decide on how much time you can realistically devote to the project, and put in on your calendar.

Whatever your New Year’s home resolution is, start with one room.  If need be, break the room down in sections to help organize where in the room you will begin and where to go next.  Collect and organize the materials you need for the project before you begin.  The greatest distraction from achieving your resolution is a trip to the store for extra supplies.

The most likely number one New Year’s resolution for the home is decluttering.  This makes sense because we all lead busy lives and collect stuff throughout the year.  But reducing the clutter in your home doesn’t only improve its appearance, it can also make you more comfortable.  Decluttering may also give a boost to your mental health.  Consider consulting with a professional organizer to help plan the project.

A home makeover is another popular New Year’s resolution project.  Fresh and new is always in.  Whether it’s painting a room or two, or installing new flooring, giving your home a new look can improve its appearance.  A new look can also affect how we feel.  Choose your color scheme carefully, because various colors elicit different responses.  For example, a blue-grays may seem relaxing, while reds are invigorating and exciting.

Catching up on deferred maintenance seems to be the New Year’s resolution that can get overwhelming.  Despite our best intentions, we all have put off some repair or regular upkeep at one time or another.  But repairs and maintenance are not static.  Meaning that over time, issues can get worse, and neglected systems can break down.  Instead of putting off repairs and maintenance, consider hiring a licensed contractor.

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Home remodeling to stay or sell

home remodeling
Home remodeling (infographic from census.gov)

The Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University predicts expanded growth of home remodeling and renovations through most of 2018.  That’s a good indication that the economy has picked up and the many homes that fell in disrepair after the Great recession are getting the much-needed attention to extend their functionality.

It wasn’t that long ago when Kermit Baker wrote about a crisis of the declining housing stock due to extensive deferred maintenance (The Return of Substandard Housing; housingperspectives.blogspot.com; February 27, 2013).  The article written for the Joint Center for Housing Studies of Harvard University highlighted the considerable reduction of home maintenance as measured by home owner “maintenance spending” during the Great Recession.  This seemed to be a low point for the country’s housing stock.  The 28 percent decrease in maintenance spending between 2007 and 2011 essentially nullified the renovation spending during the housing boom.

Home remodeling activity
Home remodeling activity Q3-2017 (graph from jchs.harvard.edu)

The Remodeling Futures Program releases a quarterly data for Leading Indicator of Remodeling Activity (LIRA). The LIRA is a “a short-term outlook of national home improvement and repair spending to owner-occupied homes.”  The most recent data indicates that home remodeling and repair spending will escalate from the fourth quarter of 2017 into the third quarter of 2018, estimating an increase from 6.3 percent to 7.7 percent.  The significant increase in home improvement spending is attributed to a strengthening economy, home equity gains, and low home re-sale inventory.  Chris Herbert, Managing Director of the Joint Center for Housing Studies is optimistic about maintenance spending.  Herbert said:

“Recent strengthening of the US economy, tight for-sale housing inventories, and healthy home equity gains are all working to boost home improvement activity…Over the coming year, owners are projected to spend in excess of $330 billion on home upgrades and replacements, as well as routine maintenance.

The current LIRA data doesn’t include the effects of recent hurricanes.  It is expected that those recent disasters will significantly increase the anticipated projected maintenance spending.

Home owners really have no choice but to spend on renovations, remodeling and repairs, especially if they are planning on selling their home.  Most home buyers want a turnkey home, where the home is fresh and new and offers minimal maintenance during the first year of ownership.  The desire for a turnkey home is probably why new home sales are at a ten-year high.  This week, the US Census Bureau (census.gov) released new home sale data that indicates a month-over-month increase of 6.2 percent, and a year-over-year increase of 18.7 percent!  To compete with other re-sales and new homes, home sellers must factor in the cost of home renovations.

There are many home owners who still can’t afford to move.  The fact that many are still priced out of the move-up market has been a major issue holding back the housing market.  This phenomenon is also responsible for continued low home re-sale inventories.  As a result, many home owners are staying in their homes much longer than anticipated.  The National Association of Realtors indicated in the Home Buyer and Seller Generational Trends Report 2017 (nar.realtor) that home buyers anticipate staying in a home about twelve years.  This is an increase of about five years compared to a decade ago.

Although many home owners still can’t move, they are deciding to do home “make overs.”  The make overs will give their homes a fresh look, that typically include new floors and paint schemes.  Additionally, kitchen and bathroom renovations modernize the home.  However, home owners needing more room, are opting to expand their homes to give them larger spaces.  Some home owners are going beyond the basics and creating different spaces by moving walls.

Regardless of your reasons for home renovations and repairs, home improvement experts recommend to create a budget and stick to it, and always hire licensed contractors.

Copyright© Dan Krell
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