Rent vs Buy 2021

rent vs buy 2021
Increasing rent

Thinking of your Rent vs Buy 2021 question? Consider Quarterly Residential Vacancies and Homeownership released by the US Census (census.gov) for the third quarter of 2020 is very interesting.  First the good news is that the US homeownership rate is the highest it’s been in a decade!  The seasonally adjusted US homeownership rate of 68.2 percent recorded in the second quarter 2020, was the highest rate since 2007.  In fact, the homeownership rate hasn’t had two consecutive quarters above 67 percent since 2009.  As you remember, the homeownership rate progressively dropped through 2015 to hover in the 63 percent range, which was the lowest homeownership rate in several generations.

rent vs buy 2021
Homeownership rate 1997-2020

The story of the housing market this year has been nothing short of phenomenal.  Initially thwarted by a dismal spring market, only to rebound at a record setting pace.  Even with historically low existing home sale inventory and rising home prices, eager home buyers are actively pursuing homeownership. 

On the flip side, the second and third quarter US rental vacancy rates are the lowest since 2008.  And the mean US rental asking rent of $1,600 marks a high point as rents continue to creep higher.  Of course, homeownership rates and rental vacancies will vary significantly depending on the region and locality.  However, looking at the US averages is a good benchmark to see trends develop.

For many, comparing increasing rent versus a low interest mortgage rates makes buying a home the answer to the rent vs buy 2021 question.  A November 8, 2012 article from Realtor Magazine (Rising Rents Press More Americans to Make Big Decision; magazine.realtor) describes the renter’s plight, by saying, “Rental price expectations continue to rise and are much higher than home price expectations…” This sentiment continues to hold true.  Besides escaping rising rents, many home buyers are drawn to the touted benefits of homeownership, including increased well-being and wealth-building.

How do you know if renting or buying is better?  First, when deciding on the rent vs buy 2021 question, there are many other considerations besides rising rents.  Consider how long you intend to live in the area.  Renting is often the housing solution if you think your residence in the area is temporary. 

Next, if you don’t already have one, create a housing budget.  Besides deciding on how much rent you can afford, talk to a mortgage lender to get prequalified to further help you understand how much you can afford to pay for mortgage or rent. 

Once you have a budget of what you can afford, create an estimated renter’s and home owner’s budget to compare.  Besides the basic housing payment (rent or mortgage), there are other items that need to be taken into account and can vary depending if you rent or own.  These other items include (but not limited to) monthly utilities, insurance, and maintenance.  To help with estimating the “extras,” start by asking the landlord and/or home seller for twelve months of utility bills (Montgomery County MD requires home sellers to provide this for owner-occupied homes).  Ask your insurance agent for a quote to compare renters’ vs homeowners’ insurance. 

Home maintenance is usually forgotten and not budgeted.  Tenants typically have minimal maintenance, which is an attraction to renting.  Generally, home maintenance for owners usually includes having seasonal or annual inspections on the home’s systems (e.g., HVAC, roof, etc).  Additionally, you have to budget to repair and/or replace systems as they age. 

By Dan Krell
Copyright © 2020

Original located at https://dankrell.com/blog/2020/12/13/rent-vs-buy-2021/

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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 Buying Persistence

home buying persistence
How to prepare for the bidding war.

Before the health lockdowns, home sale inventory was already well below the volume to maintain a healthy housing market.  Many home owners decided to put off their spring and summer home sales this year as a result of health concerns, further reducing the available home sale inventory.  The result was that the number of home buyers competing for one home increased. Low home sale inventory continues to be an issue, and there is still a high probability of competing with other buyer offers on a home.  As a home buyer, you are probably wondering how to win the multiple offer scenario. It comes down to home buying persistence.

The obvious way to win a bidding war is to make the most attractive offer to the seller.  But that’s easier said than done.  The reality is that beating out multiple home buyer offers means you need to be organized, and go in with your best offer.  And if you lose out on the home, don’t give up. 

Get organized.

First, talk to a mortgage lender before looking at homes.  Have the loan officer review your credit and income to determine what mortgage program is best for you, and get pre-approved.  Once you’re pre-approved, you can be confident about making an offer on a home.  Your mortgage application should also be easier because you’ve already given documents to the loan officer.  But the most important reason for a pre-approval is for the seller to feel confident with your offer.

When the seller reviews multiple offers, they usually rank offers with contingencies lower than the non-contingent offers.  Rather than foregoing the home inspection, consider having a pre-offer home inspection.  The pre-offer inspection will allow you to determine the condition of the home so your offer will be more attractive to the seller. 

As a home buyer, you should try to gain some insight into what the seller wants .  You may think that the seller just wants the highest price.  But that’s not always true. In multiple offer situations, the home seller looks at all factors, including price AND terms (including deposit, closing date, contingencies, etc.). 

Should you use an escalation clause?  Maybe.  In a multiple offer situation, a clean offer is usually best.  This means making your best offer.  But if you decide to use an escalation clause, make sure you are aware of the cap (limit to price), and your escalation factor.  Make your escalation factor is worthwhile for the seller; meaning if you’re the highest price by $500 or $1,000, the seller may consider other factors in their decision.  Also make sure that your escalation is in line with the estimated appraised value.

Don’t get discouraged if you lose out in multiple offer scenarios. Stick with it and have home buying persistence. Sometimes, reassessing your home buying strategy may be warranted. And your home buying persistence may mean that you look at alternative sales.

If you’re feeling a little skittish about encountering a multiple offer scenario, or already have lost a bidding war, look for homes that have little or no home buyer competition. Besides looking at “ugly” or fixer-upper homes, you may also consider FSBO (sale by owner), bank owned homes, and auctions.  Ask your agent to canvas the neighborhood asking homeowners if they want to sell, as well as calling expired listings.

Fixer-upper homes have potential and the price can usually be negotiated. If you’re worried about the cost of renovations on fixer-uppers, talk to your loan officer about renovation loans, such as the FHA 203k.  Renovation loans provide you the funding to acquire the property, and the funds to rehab the property.

By Dan Krell
Copyright © 2020

Original located at https://dankrell.com/blog/2020/11/13/home-buying-persistence/

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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.

Great time to buy a home

great time to buy a home
Should I Buy Now or Wait? (infographic from keepingcurrentmatters.com)

If you’ve been waiting to buy a home, now may be your time to jump into the market.  Maybe you’ve been wary of home prices, or concerned about mortgage rates.  Maybe you’ve been attempting to “time the market” to get a good deal on a home.  Regardless of your reason for waiting to buy a home, you shouldn’t ignore the current market conditions.  It’s as if a perfect storm of home buying conditions is lining up to a great time to buy a home.

The big news is that mortgage interest rates continue to drop.  National average mortgage rates have been declining since the fall, moving closer to the historic bottom!  The May 30th U.S. weekly average for a thirty-year fixed rate mortgage provided by the Freddie Mac Primary Mortgage Market Survey(freddiemac.com) dropped to 3.99 percent.  Mortgage News Daily’s Matthew Graham reported on June 3rd that mortgage rates dropped further (mortgagenewsdaily.com).  Graham’s title “Mortgage Rates Continue to Plummet” is telling.

Although economists express confidence in the economy, they attribute the movement in mortgage interest rates to the current trade wars and bond market activity.  The mortgage industry may also be anticipating a Fed rate cut at the next week’s meeting of the Open Market Committee.

Lower mortgage rates aren’t always a reason to take the plunge into the housing market.  But what about moderating home sale prices?  The FHFA Home Price Index (fhfa.gov) indicates that nationwide average home prices increased only 1.1 percent during the first quarter of 2019!  Compared to the year-over-year 5.1 percent HPI increase, the modest first quarter gain may indicate a more affordable housing market.   Locally, the Montgomery County year-over-year average home sale price only increased 0.2 percent, according to MarketStats by ShowingTime (getsmartcharts.com).  However, the average price per square foot decreased 14.3 percent!

Another factor making it a great time buy a home is the lackluster spring home sales.  Counter to what is expected, home sales have somewhat cooled during the spring.  A May 30th NAR press release titled “Pending Home Sales Trail Off 1.5% in April” indicates that national home sales have been declining.  In fact, the forward-looking indicator based on contract signings dropped 1.5 percent this past month.  The total pending home sales in Montgomery County dropped about 2.8 percent compared to last spring. 

There are increasingly more housing choices.  Although housing supply remains tight, there were about 2.5 percent more new listings this April compared to the same time last year.  Although many of these new listings go quickly, increasing new listings mean that there are more home sellers that are entering the market this year giving you more homes to consider.

Putting all the data points together signify a great time to buy a home.  Housing affordability has increased, partly due in part by increasing family incomes, lower mortgage rates, and moderating home prices.  Home sellers who are listing their homes for sale this spring are adjusting their sale price expectations.  Homes that have been on the market for an extended time may be an opportunity for you to negotiate a lower sale price.  According to mortgage experts, average mortgage rates have “plummeted,” giving you more flexibility and possibly lower housing costs. 

These home buying conditions may not last very long. But before you decide to buy, determine if buying a home is the right choice by consulting a Realtor and other financial professionals.

Original located at https://dankrell.com/blog/2019/06/08/great-time-to-buy-a-home/

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.

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.