Home Buyer Archives - Page 19 of 36 - Real Estate News and Commentary

January 13, 2016December 13, 2022

Real estate bargains

The typical real estate investor and the average home buyer have something in common – they both are looking for a home that makes financial sense, a bargain if you will. After all, who wants to overpay for their home? Although the investor’s priority is purely financial, a home buyer’s priority is a mix of lifestyle requirements that fits a budget. Even with priorities in line, both investors and home buyers don’t always recognize a bargain when it presents itself.

Finding a bargain home is not as easy as some will have you believe. Bargain hunters typically look for distressed properties such as foreclosures (also known as “bank owned” or REO homes) and short sales. Although there was abundant opportunity to buying such homes immediately after the housing crash, many were hesitant due to lack of market confidence. However, as confidence was revived in the housing market, the courthouse real estate auctions were once again attended home buyers and investors looking for good buys. And as home prices increased, so did the price for distressed properties; making it more difficult to find the bargain home. Even “motivated” home owners may not be as motivated as you think in today’s market.

This phenomenon is corroborated by a recent study of “bargain homes” by Trulia’s research blog. Ralph McLaughlin reported on January 7^th (Where Is A “Bargain” Really A Bargain?; trulia.com) that advertised bargains were actually good buys in 55 of 100 housing markets. Furthermore, hot markets tend to offer less price discounting than cooler markets; home sellers are less inclined to make price reductions in markets where there is increased buyer competition. Locally, the Baltimore metro region was found to be in the top discounted markets for bargain homes (with an average discount of 11.3%); while the Washington DC metro region was found to be in bottom of discounted markets with an average of 4% discount on a bargain home.

It’s clear now that home prices were at the bottom during 2008-2009. At that time, home inventories swelled and there was an abundance of (what would seem today) “cheap” homes for sale. I wrote at that time (If Cheap isn’t Selling, What is?; May 28, 2008) about how cheap homes were not selling, and how home buyers changed their focus from “buy anything” to buying quality homes that impart value. Of course, one of the main reasons cheap homes were not selling quickly was that there was an additional cost associated with the purchase; most of the cheap homes were distressed and required rehab, or at the very least needed updates and minor renovations.

For most investors, the concept of a bargain home is strictly the result of numbers in a formula; and for some home buyers, the bargain may be about getting a good price. However, a bargain home could be more than just the price tag. Maybe the bargain home is also the “value added” home. Rather than just focusing on price, buyers should also be aware of a home’s potential. Of course there is always risk when buying a home, which we experienced during the financial meltdown eight years ago.

Regardless, many lament having not bought homes at or near the price bottom. But hindsight is 20/20. And what didn’t seem like a bargain just a few years ago, is in comparison to today’s increasing home prices and an active housing market, a missed opportunity.

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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.

October 28, 2015October 20, 2020

Living with a ghost in your home

A recent Trulia poll (infographic at right) revealed how men and women differ about living in a home associated with the paranormal or macabre (Trulia’s House of Horrors; trulia.com; October 13, 2015). Respondents (45% of women and 36% of men) answered that they would prefer to be haunted by a “vengeful ghost” rather than a demon, evil leprechaun, or possessed doll. When asked, 59% of women respondents indicated that they would lose interest in the “perfect” home if they knew the home was a former crime scene; while 47% of men indicated the same. Additionally, 32% of women indicated that they would rule out an otherwise perfect home knowing that a person died there; while 23% of men indicated the same. Apparently, living next to a cemetery was not a detractor from purchasing an otherwise perfect home, according to 61% of the men and 50% of the women who responded.

Ghost or not, the “creep factor” is definitely an issue for many home buyers. So much so that home buyers are turning to services such as DiedInHouse.com to determine if a death occurred in a home they are considering buying. For a fee, DiedInHouse.com will provide a report indicating if a death has occurred and the cause, as well as other information about the home including any reported meth-lab related activity or fire incidents.

Although many alleged haunted homes are old and in many cases have historic significance, new homes can also have ghostly activity. Local historian, Karen Yaffe Lottes, re-tells this story on her blog Montgomery-Ghosts (montgomeryghosts.wordpress.com) about a modern Germantown home where a police officer lived. The officer reported that the house shook and he heard heavy footsteps on the stairs, when putting on “dress blues.” Apparently, the house was built on the site of the farm where Lincoln conspirator, George Atzerodt, was arrested by a uniformed Union soldier – the Union Army uniform was blue. Atzerodt, was subsequently jailed and hanged for his part in the conspiracy. Could Atzerodt still reside on the site where he was apprehended and sent to his demise?

Karen knows a thing or two about local haunted homes, and told me that she uses ghost stories as a medium to tell a history. Along with co-author Dorothy Pugh, years of stories from their “In Search of Ghosts (ISOG)” event at the Montgomery County Historical Society was published as In Search of Maryland Ghosts: Montgomery County (Schiffer Publishing, October 28, 2012).

When asked what to do if paranormal activity is suspected in a home, Karen explained that people try various methods to rid their home of ghosts; some work and some do not. She pointed out that not everyone is uncomfortable with the thought of living with apparitions. Some people actually welcome the spirit to stay; and in some cases ask the ghost to move with them to their next home.

By Dan Krell
©2015

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October 22, 2015December 13, 2022

Housing affordability in a post recession world

I talk to lots of people at open houses. You shouldn’t be surprised to hear that although some express concerns about increasing home prices and their ability to buy a home, many also express their exasperation with increasing rents. And although home prices and ability to get a mortgage are among top concerns for home buyers, according to Realtor® Magazine (Top 6 Home Buyer Concerns, realtormag.realtor.org, August 24,2015); buyer apprehensions have not changed much over the years. There is always a group of buyers who fuss over home prices, down payments, and mortgages. So much so, that it seems as if it is a permanent part of the housing landscape.

The housing market is experiencing year-over-year home price gains. The September 29^th release of the S&P/Case-Shiller U.S. National Home Price Index (spindices.com) that indicated the 10-city composite increased about 4.5% year-over-year, while the 20-city composite increased about 5% year-over-year. And a recent report from Zillow Research (zillow.com) that indicated median national home prices increased about 3.3% year-over-year during August, while median national rent increased 3.8% during the same period. However, owning a home may be presently a lower percentage of income when compared to other historical periods: Zillow Research indicated that the U.S. Share of Income Spent on Mortgage was about 15% during June 2015, and the U.S. Share of Income Spent on Rent was about 30% during June 2015; while the Historic Share of Income Spent (during 1985 to 1999) was 21% and 24% respectively.

Home prices certainly affect housing affordability. However, affordability may also be affected by the cost of qualifying of a mortgage. Although there is a recent movement for lenders to loosen credit guidelines, qualifying for a mortgage is still more difficult today than it was a decade ago.

Laurie Goodman, Director of the Housing Finance Policy Center at the Urban Institute, recently wrote about how the lack of private-label mortgage securitization has affected many who don’t fit government backed mortgage guidelines. (Mortgage securitization is what provides the mortgage market liquidity, and allows banks to make the loans.) Goodman had this to say about the present lack of private-label mortgage securitization: “The disappearance of this market has affected the availability and cost of mortgages for one group of borrowers—those with less wealth and less than perfect credit who do not quality for government-backed loans” (Why you should care that private investors don’t want to buy your mortgage anymore, urban.org, October 9, 2015).

Goodman pointed out that prior to the great recession, the private-label mortgage securitization market was thriving; however post recession, private-label securitization has all but “collapsed.” Presently, mortgages are primarily government backed and or purchased by Fannie Mae, Freddie Mac, FHA, VA and others; which eliminates many borrowers with imperfect credit and/or don’t meet strict guidelines. However, if the private-label securitization further retreats or is eliminated, she predicts that borrowers with perfect credit and those living in “expensive” regions (such as Washington DC, New York, San Francisco) will be affected as well.

Tight credit guidelines may not be the only reason for many renters to rule out a home purchase. Not having an adequate down payment is another reason many don’t qualify for a mortgage. The lack of savings by Americans was documented by a survey conducted by the Consumer Federation of America (7th Annual Savings Survey Reveals Persistence of Financial Challenges Facing Most Americans, consumerfed.org, February 24, 2014).

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October 7, 2015November 23, 2021

Real estate agents getting back to basics and focus on relationships

Don’t be surprised when you’re getting more real estate agent phone calls, or seeing more agents at your doorstep. You may be surprised to know that in this increasingly tech dependent world, agents are getting back to business basics; which is founded in personal introductions, building relationships, and providing personal service.

You see, many real estate agents (like the rest of the population), are realizing the limitations of the internet. What was once the promise of a new market place for products and services has become a super-saturated arena of information, advice, and “content” clamoring for your attention; and is a growing disappointment for many due to the increasing irrelevance of information, not to mention the surge of fraud and hacking.

The National Association of Realtors® (realtor.org) has reported on the growth of internet use in real estate over the last fifteen years in their annual Profile of Home Buyers and Sellers (the 2014 Profile indicated that 92% of buyers “use the internet in some way in their home search process…”). And although the statistic is astounding, it is becoming clear that is still not wholly understood how home buyers and sellers use the internet.

You may not be surprised to know that home buyers and sellers don’t entirely rely on the internet for choosing their agent. In fact, many choose an agent through friend/family referrals, personal introductions, and even serendipitous meetings (such as visiting an open house). Furthermore, buyers and sellers are increasingly aware of the internet’s limitations as well; as one home buyer’s recent statement of “…this home is not what was advertised on the internet…” illustrates the type of misleading information that is often found.

Although many are just waking up to the fact that “point and click” does not sell homes, “big housing data” knows it generates online revenue by capturing your information and selling it to real estate agents, loan officers, movers, and others. Last year’s acquisition of Trulia by Zillow was thought by many analysts to be an industry game changer by merging two of the most visited real estate portals. However, many did not consider that the move was to increase traffic and revenue for two companies that were reportedly not “yet profitable” on their own, by “grabbing a bigger slice of the advertising market” (Logan, Tim. “Zillow Deal to Buy Trulia Creates Real Estate Digital Ad Juggernaut.” LA Times. 28 July 2014.<latimes.com>).

More recently, HousingWire’s Ben Lane reported on Zillow’s downgrade by Barclays (“Is Zillow in Trouble?” HousingWire. 20 July 2015. <housingwire.com>), referring to a slowdown of traffic due to saturation and competition. Months after the major acquisition, growth of the online real estate portal is “slowing significantly.”

Just as the growth of the internet created markets and changed how real estate agents conduct business; personal needs and attentions are changing how consumers view the internet, as well as producing voids left by agents and brokers who heavily relied on the internet for business.

The NAR’s recent DANGER Report misses the mark by highlighting perceived shortcomings in Realtor® ethics and competency. However, the real issue may be more about the lack of professional intimacy; which is necessary for commitment, integrity, and building trust. While some already know it, others are waking up to the notion that the quality of the professional relationship is vital to the consumer’s satisfaction – and it all begins with an introduction.

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September 30, 2015November 23, 2021

Herding behavior and real estate decisions

Have you ever wondered why real estate trends develop? When we’re buying and selling a home, we like to think we act rationally and with intention. However, our decision making is influenced externally. We are affected by the attitudes of the experts, family and friends, from whom we solicit advice. We are also consciously and unconsciously influenced by information we get from TV, the internet, social media, news papers, and even from eavesdropping conversations. Your decision making may be based on others’ behaviors that signaled it was the correct thing to do, and in turn magnifies and strengthens the signal to others – which is described as herding behavior.

Herding behavior plays a large role in our daily lives, as well as in our real estate choices and conclusions. Decisions about home buying and selling, which agent to hire, sales prices, and even whether or not we should default on our mortgage can be influenced by herding behaviors.

A 2013 study of herding behavior in strategic default revealed significant findings about our vulnerability to information (Luchtenberg & Seiler (2013).The effect of exogenous information signal strength on herding. Review of Behavioral Finance, 5(2),153-174). To refresh your memory, strategic default (allowing a home to go to foreclosure when financially able to pay the mortgage) became a significant trend that was widely covered in the media during 2010-2012. Luchtenberg & Seiler’s research into decision making and herding behavior suggested that those who are susceptible to information can be easily swayed. Their findings among professionals revealed that low consensus information (“weak information signals”) caused herding when asked to make a personal choice; while high consensus information (“strong information signals”) caused herding when providing advice to a friend.

The notion that the housing and financial crises were caused by herding behavior is not new. However, economist Christian Hott researched if housing bubbles are caused by herding behavior (Hott, C. (2012). The influence of herding behaviour on house prices. Journal of European Real Estate Research, 5(3),177-198). Citing others, Hott explains that herding behaviors are formed by those who are “imperfectly informed” and “learn from the decisions” of others; and that people tend to “overestimate the likelihood of an event” to occur to them when they hear it happened to someone else (expecting the same experience that someone else had). Although Hott concluded that herding was not the only contributor to the housing market collapse, and suggested that mortgage banking was also likely responsible; the findings indicated that herding behavior does play a role in home price fluctuations and housing bubbles.

Cognitive dissonance may also be at work to reinforce your herding behaviors. You may act on information that is not widely acknowledged just because the source is significant to you (such as a relative, close friend or co-worker). And the stronger your belief in the information, the more likely you will in turn confidently give the same advice to others, even though it may be inaccurate and/or irrational.

Breaking away from the herd is difficult; buying and selling a home may not seem to be a rational process – even when confronted with facts. People don’t always base decision of logical choices, but rather base decisions on psycho-emotional needs and/or fears (such as status, acceptance, and avoidance of failure). However, seeking balanced information and becoming aware of your motivations may improve your decision making.

Original published at https://dankrell.com/blog/2015/09/30/herding-behavior-can-interfere-with-real-estate-decisions/

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