Home Buying Strategies 2020

home buying strategies
Home Buyers (infograpic from nar.realtor)

Experts’ home sale inventory forecasts for the spring echo expectations from recent years. And in some regions, it could be a very competitive home buyer market.  Affordability is likely to be a major issue according to CoreLogic’s chief economist Frank Nothaft (Peering into the Housing and Mortgage Outlook with 20/20 Vision; corelogic.com; December 5,2019).  The CoreLogic Home Price Index predicts that 2020 home prices will increase more than they did during 2019.  Lower priced homes will likely appreciate at a much higher rate than upper bracket and luxury homes.  Buyers should have their home buying strategies in mind when looking for homes.

Many first-time home buyers may become discouraged and decide to continue renting.  However, renting is expected to be less affordable in 2020.  CoreLogic’s Single-Family Rent Index indicates that rents are increasing at double the rate of inflation.  So, although renting may seem like the default fallback, it may be the more expensive option.  A combination of increasing rent, a continuing good economy, and historically low mortgage rates are expected to be the catalyst for home buyers to get into the market.

If you’re a home buyer, the 2020 housing market outlook may sound daunting. Although you may be anticipating something akin to the Game of Thrones this spring, take heart because planning and having home buying strategies can help your home buying success.

Talk to a mortgage lender.  One of the worst feelings is finding out a seller took another offer because your offer didn’t have a financing letter.  Not identifying a lender and securing an approval letter before looking at homes is a strategic error, especially if you need to move fast on making an offer. Having awesome credit scores, a good income, and savings in the bank, means nothing to a home seller unless a mortgage professional confirms this with a mortgage approval letter. 

Work out a home buying budget.  Consult financial professionals, such as your financial planner or CPA to review income, assets, and debts to determine a realistic housing budget.  In deciding on your housing budget, consider monthly mortgage payments, HOA or condo fees, property tax, insurance, utilities, maintenance, etc.  Your loan officer can help determine a home price range based on your monthly housing budget.  Although, your home buying budget may be less than the maximum mortgage amount for which you qualify, don’t be tempted to go beyond your budget.  Sticking to your budget can help you avoid “buyer’s remorse.”  

Although the national housing market is portrayed as very competitive for home buyers, CoreLogic’s Nothaft suggests that local neighborhood markets can differ widely.  As a home buyer, keep an open mind and consider a wider home search area.  Consider all your home buying options, including new construction, and the possibility of doing an FHA 203k renovation

One of the most important home buying strategies is to choose your Realtor carefully, as not all agents are the same.  Hookup with an experienced full-time real estate agent.  Empirical research studies indicate that a seasoned, veteran agent can make a positive impact on your home purchase.  Experienced agents understand the nuances of negotiating and can make your home buying experience more efficient.  Full-time agents know the market, which is an asset during your home search.  Don’t just rely on the first agent you meet at an open house, or finding an agent on the internet.  Talk to several (or more) Realtors to determine if they’re a good fit for your goals.  Make sure the agent you hire has your best interests in mind when searching homes and negotiating. 

Original article is published at https://dankrell.com/blog/2020/01/10/home-buying-strategies-2020/

By Dan Krell
Copyright© 2019

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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.

New Home or Resale for You?

new home or resale
First time home buyers (infographic from nar.realtor)

No matter what items a home buyer has on their wish list, they are typically constrained by the home price.  As a result, the buyer is often limited in their choices.  Accordingly, buyers prioritize home features and benefits when comparing homes. Deciding between a new home or resale becomes a part of the buying process.

Nonetheless, home buyers often have a choice between a new home or resale.  Besides the allure of contemporary design and modern building materials, the benefit of new construction is the minimal maintenance during the first year of ownership.  Although many home buyers desire to buy new construction, the combination of their budget and criteria lead them to a resale home. 

A resale refers to a home that is being sold by a home owner, rather than the builder.  The average age of a resale home can vary depending on the location.  It’s not uncommon to find a resale in a new home development.  However, when resale comes to mind, most think of homes where they grew up.

Although the home buying budget is a main consideration, there are other reasons why home buyers decide to purchase a resale rather than new construction.  One of the main reasons, as stated above, is that the resale fits their criteria for price, location, size, etc.  It’s typical to get more house and yard when purchasing an older home, when compared to a new home of similar price.  Resale homes tend to be located in established neighborhoods, whereas new home developments’ amenities are often not yet completed. 

Regardless, some home buyers are attracted to older homes.  It seems as if there is a correlation between a home’s age and the charm it exudes.  The older the home, the more likely a home buyer is captivated by its charm.  When explaining a home’s “charm,” buyers usually describe a combination of style and craftsmanship.  They often refer to the saying “they don’t build them the way they used to.” 

Although most home buyers want a turn-key home, some buyers find opportunity in older homes that are in need of repair or updating.  These buyers feel they can create a home that meets their needs and lifestyle without breaking their budget. 

When buying a resale, don’t expect the home to be perfect, even if the home is relatively new or has been renovated.  There is no getting around the fact that living in a home promotes wear-and-tear.  Consider that a home is made of many components each having a limited life span.  Regular maintenance can prolong a home’s life.  However, you will eventually have to replace components and systems. 

Resale homes are not maintenance free, and deferring maintenance creates costlier repairs.  Experts recommend that you have a repair budget.  You shouldn’t just budget for regular maintenance and repairs, you should also budget for future updating.  Ask your agent about a home warranty that can help you with repairs on a fixed service-call fee.  Get a thorough home inspection.  Home building has changed dramatically over the last one-hundred years, so make sure you hire a licensed inspector that is knowledgeable with the engineering and materials in your home.  (Keep in mind that home inspectors are not perfect, so there may be a chance of finding conditions that eluded the inspection.)  Even if the home appears to be in good condition, the inspection is likely to find items in need of repair.  You and your agent can decide on the best negotiating strategy of inspection repairs. 

Original article is published at https://dankrell.com/blog/2019/12/15/new-home-or-resale-for-you/

By Dan Krell
Copyright© 2019

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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.

Home Buyer Beware

home buyer beware
Home buyer tips

Whether you admit it or not, buying a home is a stressful endeavor.  Even if you’ve purchased a home before, the process can be somewhat nerve-wracking and overwhelming.  Taking time out of your already busy schedule to search and visit homes, as well as applying for a mortgage can make life hectic.  So, who needs the added worry that that the home seller and/or listing agent is trying to hide something from you?  Home buyer beware.

Maryland requires the home seller to disclose any known latent defects, regardless if they are choosing the disclosure or disclaimer option. To be clear, the Maryland Real Estate Commission’s Residential Property Disclosure and Disclaimer Statement states that a seller must disclose “Material defects in real property or an improvement to real property that: (1) A purchaser would not reasonably be expected to ascertain or observe by a careful visual inspection of the real property; and (2) Would pose a direct threat to the health or safety of (purchaser and/or occupant).”  Regardless, there is still a “home buyer beware” atmosphere. 

How can you proceed confidently with your home purchase if there is a sense of distrust?  To counteract the home buyer beware phenomenon, focus on “trust and verify.”  The concept of trust and verify is about taking disclosures at face value and exercising due diligence.  To the best of your ability, confirm the accuracy of what is disclosed, as well as investigate any areas of concern.  Many items can be verified online, or by calling the locality where the house is located. 

Home buyer beware

Of course, you should always conduct a home inspection.  However, prior to hiring your home inspector, ask about their scope and limitations of the inspection.  Home inspectors are considered generalists, such that they are not typically an expert in any aspect of home construction, or the home’s structure and systems.  However, they are trained to identify potential common problems.  They will also recommend that you consult an expert for further information on anything that is outside the scope of the inspection.  And although home inspector licensing laws prescribes minimum inspection standards, there is no guarantee that everything will be inspected thoroughly beyond a visual inspection (e.g., chimney or pool).  Make sure your inspector meets your expectations so as to thoroughly inspect all systems of the home. 

If the home was expanded, verify that additions and/or modifications to the home were permitted by the local jurisdiction.  Unpermitted additions can create a number of issues, including having your lender deny your mortgage.  It’s not uncommon for additions/modified items (such as a deck, and even electrical improvements) in a home to go unpermitted.  This is usually because the home owner did it themselves, or hired a contractor who cut the corner of getting a permit.  The permitting process certifies that repairs/renovations comply with local building and zoning codes.  Making sure any addition or home expansion was permitted and passed final inspection gives peace of mind that the completed project meets local building health and safety standards.

Keeping home buyer beware in mind, due your due diligence. There are many other aspects of the home which can be verified, including (but not limited to) schools and zoning.  If you’re buying a home to go to a specific public school, verify that the house is within the school’s boundaries and if there are plans to redistrict.  If you plan to have an air-b&b in your home, make sure the house is appropriately zoned. You should also check zoning and the local planning office to make sure your potential building/addition plans are not restricted.

By Dan Krell
Copyright © 2019

Original located at https://dankrell.com/blog/2019/09/04/home-buyer-beware/

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Housing Inventory Shortage Causes

housing inventory shortage
Mover rates (infographic from census.gov)

A common complaint from home buyers is that there is lack of quality homes for sale.  A fact that most overlook is that home sale inventory has been relatively low since 2011.  The shortage has been attributed to many things including, home prices, economy, mortgage interest rates, jobs, etc.  However, a Freddie Mac report issued earlier this year pinpoints a major cause of the ongoing inventory shortage.  And according to the report, the housing shortage may get worse before it gets better.

A post-recession housing inventory shortage was actually predicted in 2010 by Brian Wesbury, chief economist for First Trust Advisers (Housing Shortage Coming In 2011; Forbes.com; February 15, 2010).  Wesbury’s industry startling prediction was based on statistics that require an average of 1.5 million homes to be added to the housing inventory each year just to be on par with population growth.  At that time, housing starts and completions were only a fraction of the 1.5 million target. 

Since then, housing market inventory has been low relative to the housing market prior to the great recession.  A lack of inventory has been attributed for inconsistent home sale stats this year, as well as previous years.  And although there have been a few years of post-recession record home sales, home sales have struggled for ten years to surpass pre-recession numbers. 

A study by Freddie Mac discusses one of the major causes of the recent housing shortage that has been impeding the real estate market, which is the growing trend of “aging in place.”  The study, published by Freddie Mac Insights earlier this year (While Seniors Age in Place, Millennials Wait Longer and May Pay More for their First Homes; freddiemac.com; February 6, 2019), is fueling an ongoing debate of the current housing inventory shortage. 

Aging in place is term given to aging home owners who stay on their homes as long as possible.  Rather than moving to retirement communities or other stereotypical older adult housing, seniors are staying put.  This trend is confirmed by a survey conducted by AARP that indicated “3 out of 4 adults age 50 and older want to stay in their homes and communities as they age” (2018 Home and Community Preferences: A National Survey of Adults Age 18-Plus; aarp.org; August 2018).

To highlight the impact of the current trend of aging in place, the Freddie Mac report pointed out that the home ownership rate for seniors aged 67 to 85 only dropped 3.6 percent, while the previous generation experienced a 11.6 percent drop in homeownership for the same age span.  A major revelation was that the current homeownership rate for seniors aged 81 to 85 is almost 15 times greater than the previous generation (for the same age span).

The Freddie Mac study looked at subdued millennial home buying trends and looked at who lived in the homes that millennials could have purchased.  The results indicated that seniors born after 1931 stayed in their homes longer, which resulted in higher homeownership rates compared to previous generations.  According to the study, “We estimate that this trend accounts for about 1.6 million houses held back from the market through 2018, representing about one year’s typical supply of new construction, or more than half of the current shortfall of 2.5 million housing units…This additional demand for homeownership from seniors will increase the relative price of owning versus renting, making renting more attractive to younger generations…

By Dan Krell
Copyright © 2019

Original located at https://dankrell.com/blog/2019/07/21/housing-inventory-shortage-causes/

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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.

Overpaying First-time Homebuyers

overpaying first-time homebuyers
First-Time Homebuyers (infographic from nar.Realtor)

If you’re thinking of buying your first home, or have already started the process, take note.  First time home buyers tend to overpay when buying a home.  This is the conclusion of a study recently published in the Journal of Real Estate Research (Under What Circumstances do First-time Homebuyers Overpay? – An Empirical Analysis Using Mortgage and Appraisal Data; 2019).  Although the stunning claim of overpaying first-time homebuyers is worthy of discussion, there’s more to the story than what’s implied. 

Considering housing affordability, authors Jessica Shui and Shriya Murthy tested their hypothesis that first-time homebuyers tend to overpay for their homes compared to repeat home buyers. Their conclusions indicate that the overpayment is a little more than one percent.  It doesn’t sound like much, but the overpayment could be a little more than $3,500 on a $350,000 home purchase.  In addition to discussing overpayment, they found that first-time homebuyers typically buy smaller homes with less amenities (which is not a surprise). 

Are home prices increased because of seller closing cost assistance?  Many first-time homebuyers lack cash and savings and typically ask for seller closing cost assistance.  For most first-time homebuyer purchases, the seller credit is already “baked” into the list price.  Anticipating that the buyer will ask for a closing assistance, the home seller typically will increase their asking price from the outset.  However, some home sale prices are negotiated upward to add seller closing assistance to the list price.

Although Shui and Murthy imply that first-time homebuyers are less savvy than their counterparts, they look toward appraisals as the cause and the solution.  Their results indicate that a majority of first-time homebuyer appraisals provide valuations at contract price, and suggest that appraisers are somewhat “biased” to help the house appraise.  Their solution is for appraisers to be neutral, which they believe would mitigate inflated home prices and help first-time homebuyers renegotiate the contract price. 

Although the study takes a circuitous route to the conclusion, the premise and statistics are presented to make it sound as if appraisers are at fault for overpaying first-time homebuyers .  However, if this is your first home purchase, there are many more factors to consider. 

Take for instance the buyer agent.  Research has demonstrated that most buyer agents don’t act in the best interest of their clients.  Most notable is the research that indicates that seller-paid buyer agent commissions actually increase home sale price (which I cited last week).  When hiring a buyer agent, you should take into account how they view their fiduciary responsibility.  Don’t assume the list price is reasonable.  Have your buyer agent provide unbiased comparables to formulate an offer and negotiating strategy. 

Although you have the right to choose your lender and title company (among other real estate professionals), you may be steered toward a professional affiliated with your buyer broker/agent.  Before deciding, compare costs and ask for references.  (Knowing your rights as a real estate consumer is crucial, see: https://dankrell.com/blog/2014/02/27/respa-empowers-home-buyers-and-consumers/)

Overpaying first-time homebuyers is not just about home sale price.  There are other areas where you may not negotiate well. The home inspection is one of those issues, and can also reveal that the home is need of repair.  You probably would like to negotiate repairs to be completed by licensed contractors.  Sometimes, the seller will offer a credit in lieu of making repairs. Before accepting the credit, make certain the amount is adequate by checking with your licensed contractor.

Finally, understand that buying your first home is emotional.  Don’t fall prey to agent sales tactics.  Stay focused on the facts and use the data to help you formulate your offer to negotiate the best price.

Original located at https://dankrell.com/blog/2019/06/03/overpaying-first-time-homebuyers

By Dan Krell
Copyright © 2019

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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.