home buying Archives - Page 10 of 14 - Real Estate News and Commentary

December 15, 2016December 13, 2022

Homeownership evolving

homeownership and American Dream — Homeownership and the American Dream (from SolomonMcCown.com and bulldogreporter.com)

Homeownership wasn’t always part of the American Dream. The American Dream originated as a concept about increasing one’s quality of life, which was well established before the Country’s independence from Britain. John Kenneth White and Sandra L. Hanson discussed the history of the American Dream in the introduction to their edited collection “The American Dream in the 21^st Century” (2011; Temple University Press). They describe the American Dream as being fundamental to the Declaration of Independence. But the, the idiom “American Dream” was not in our lexicon until the twentieth century. Although James Truslow Adams has been credited for the phrase “American Dream;” White and Hanson attribute its first use to Walter Lippmann, who used it in his 1914 book “Drift and Mastery.” Adams’ 1931 work “The Epic of America” was the first widely accepted promotion of the phrase “American Dream.”

Homeownership most likely became a part of the American Dream as the middle class developed and rose in economic prominence. However, it probably wasn’t until the 1930’s when homeownership and American Dream were associated; when the Federal Housing Authority was established to make owning a home affordable. Before the FHA, buying a home meant signing up for a short term mortgage with a high down payment; which made renting the only option for most.

Homeownership can also be gauged by the health of the middle class. As the Amercican middle class fares, so does homeownership. This is evident from the effects of a recession; when the middle class takes the brunt of an economic downturn, homeowner rates typically suffer as a result.

Homeownership rates have steadily decreased from a peak approaching 70 percent just before the housing crash, to the current rate of 63.5 percent (census.gov). From the Census October 27th press release:

“National vacancy rates in the third quarter 2016 were 6.8 percent for rental housing and 1.8 percent for homeowner housing. The rental vacancy rate of 6.8 percent was 0.5 percentage points (+/-0.4 percentage points) lower than the rate in the third quarter 2015 and not statistically different from the rate in the second quarter 2016. The homeowner vacancy rate of 1.8 percent was not statistically different from the third quarter 2015 or second quarter 2016 rates.

The homeownership rate of 63.5 percent was not statistically different from the rate in the third quarter 2015 (63.7 percent) and 0.6 percentage points (+/-0.4 percentage points) higher than the rate in the second quarter 2016.”

The decline has been attributed to shrinking middle class, changing demographics, and the residual economic malaise of the Great Recession. Although the declining homeownership rate seems as if it is a recent phenomenon, it’s actually cyclical. Anthony DePalma reported for the New York Times about the declining homeownership rate in the post-recession climate of the 1980’s (IN THE NATION; Why Owning a Home Is the American Dream; nytimes.com; September 11, 1988).

The recent research of the future of homeownership by Spader, McCue, and Herbert projected three scenarios (Homeowner Households and the U.S. Homeownership Rate: Tenure Projections for 2015-2035; Joint Center for Housing Studies of Harvard; working paper, 2016). The low scenario is that homeownership rates continue to decline to a rate of 60.6 percent through the year 2020. The high scenario is that homeownership rates will once again increase through the year 2025 and peak around 65 percent. However, they also provide for a scenario where homeownership rates stabilize and maintain at current levels:

“The base scenario, which holds homeownership rates constant at their 2015 levels, shows that projected changes in the demographic composition of U.S. households by age, race/ethnicity, and family type will largely offset one another, affecting the homeownership rate only minimally through 2035. Under this scenario, projected household growth will add 8.9 million homeowner households and 4.7 million renter households by 2025, and 15.7 million homeowner households and 9.4 million renter households by 2035. Alternatively, the low and high scenarios produce a range for the national homeownership rate of 60.7 percent to 64.8 percent by 2035, resulting in different levels of growth in homeowner and renter households.”

They concede that the trajectory of homeownership is complex, stating:

“… the homeownership rate’s actual trajectory will depend on how quickly the foreclosure backlog clears, how many foreclosed households reenter homeownership, and whether young households’ slowed rates of homeownership entry persist in future years. Additionally, any major changes in the broader economy, housing finance system, or households’ attitudes toward homeownership may also influence future homeownership rates to the extent that they alter households’ demand or access to homeownership…”

Home owners are more inclined to maintain their homes and neighborhoods, as well as being invested in protecting their home and community; which may account for lower incidences of reported crime. Besides stabilizing communities, many of these benefits may also account for positively affecting home values.

The benefits of homeownership have been well documented and discussed by Research Economist Selma Hepp for the National Association of Realtors®:

“In addition to tangible financial benefits, research has shown that homeownership brings substantial social benefits for families, communities, and the country as a whole. Because of these societal benefits, policy makers have promoted homeownership through a number of channels. Homeownership has been an essential element of the American Dream for decades and continues to be so even today. Some of the documented social benefits include:

Increased charitable activity

Civic participation in both local community and national issues (including voting)

Greater awareness of the political process

Higher incidence of membership in voluntary organizations and church attendance

Greater social capital generated

Greater attachment to the neighborhood and neighbors

Lower teen pregnancy by children’s living in owned homes

Higher student test scores by children’s living in owned homes

Higher rate of high school graduation thereby higher earnings

Children more likely to participate in organized activities and have less television screen time

Homeowners take on a greater responsibility such as home maintenance and acquiring the financial skills to handle mortgage payments and those skills transfer to their children

Lower teenage delinquencies

General increase in positive outlook to life

Homeowners reported higher life satisfaction, higher self-esteem, happiness, and higher perceived control over their lives

Better health outcomes, better physical and psychological health

Tremendous wealth gains for homeowners under normal housing market conditions (outside of the terrible bubble/bust housing years)

Homeowners not only experience a significant increase in housing satisfaction, but also obtain a higher satisfaction even in the same home in which they resided as renters

Family financial situation and housing tenure during childhood and adulthood, impacted one’s self-rated health (in particular, the socioeconomic disadvantaged indicated by not being able to save any money or not owning or purchasing a home are less likely to self-rate their health as excellent or very good).

Less likely to become crime victims

Homeowners better maintain their homes, and high quality structures also raise mental health -renter-occupied housing appreciates less than owner-occupied housing

Housing prices are higher in high-ownership neighborhoods

Maintenance behavior of individual homeowners is influenced by those of their neighbors”

As the American Dream continues to evolve, so does the goal for homeownership. Although many have not been recently swayed by benefits, the cycle may once again reveal the true value of homeownership.

Dan Krell
Copyright © 2016

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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.

November 4, 2016November 4, 2016

35 years of home buying changes

Years of home buying changes? (infographic from keepingcurrentmatters.com)

This week’s release of the National Association of Realtors® Annual Profile of Home Buyers and Sellers marks the 35^th year of NAR’s analysis and description of home buyer and seller behaviors and attitudes. You may not remember what it was like in 1981, but the country was coming out of a deep recession. The economy was still scarred with double-digit unemployment, inflation and interest rates. The 35^th issue makes us think about home buying changes over the years.

According to the US Census Bureau (census.gov), the median price for a new home in 1981 was $68,900, while in 2010 the average new home price was $221,800. Freddie Mac’s (freddiemac.com) data indicates that the average mortgage interest rate in 1981 was 16.63 percent, and 4.69 percent in 2010. Surprisingly, the cost of housing (when financing 100 percent of the sale price) has only increased about 17.5 percent from 1981 to 2010!

People want their space and privacy. According to the American Enterprise Institute (aei.org), the median square feet per person in a home in 1981 was about 550sf, while in 2014 it was 987sf. This expansion in personal space was expressed in the home size. The median size of a home in 1981 1,550sf, while 2010 it was 2,169sf (according to the Census Bureau). Also consider that the typical home of 1981 only had one and a half bathrooms, and the expectation today is that a home should have at least two and a half bathrooms.

An October 18^th news release from the NAR (Five Notable Nuggets from NAR’s Home Buyer and Sellers Survey’s 35-Year History; realtor.org) provided some insight into how the housing market has changed through the years. One noticeable factor is the reduced number of first time home buyers entering the market due to underemployment, student debt, lack of down payment, or delaying family formation. Last year’s percentage of first time home buyers dropped the lowest rate since 1987; and “according to the U.S. Census Bureau, the homeownership rate for 18-35 year-olds is currently at 34.1 percent, the lowest level in records dating back to 1994.”

It’s becoming apparent that real estate agents are not being replaced by the internet. Although a majority of home buyers use the internet to assist them with the home buying process, the NAR reported that 90 percent of home buyers and sellers surveyed for this year’s profile worked with a real estate agent. As a result, for-sale-by-owner transactions were at the lowest level ever (FSBO transactions peaked during 2003-2004).

The home buying process now takes longer than it used to. Putting aside recent changes to the mortgage process, the 2016 Home Buyer and Seller Profile brings attention to the amount of time a home buyer needs to find a home. According to the NAR, the average time to find a home was relatively unchanged from the 1980’s to about 2007; which about seven to eight weeks. The duration of the home search peaked at twelve weeks from 2009 to 2013. However, since then the average time needed to find a home is about ten weeks. The increased search time is due to a number of factors. Brisk sales combined with periods of low inventory has not provided home buyers with much of a choice from which to select. Not to mention an unprecedented amount of available information that has created a savvy home buyer.

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October 28, 2016December 13, 2022

Home inspection surprises

The American Society of Home Inspectors (ASHI) often conducts surveys to measure home buyer satisfaction. Although most home buyers are typically satisfied with their home inspections, you should be prepared for home inspection surprises after you move into your new home.

A 2012 ASHI survey conducted by Harris Interactive indicated that home buyer confidence was boosted in eighty-eight percent of respondents who had a home inspection before buying. A 2011 ASHI survey revealed that about seventy-two percent of homeowner respondents indicated that their home inspection helped them avoid potential problems with their home.

Although the surveys suggest a majority of home buyers are usually satisfied with their home inspections, there are some that are not. It’s not unusual to read or hear about a home inspection that is not perfect. And sometimes the home inspection goes awry from the start. An agent once told me a story about a home inspector who flooded a condo because he wanted to check the fill rate of tub by closing the drain; he walked away and forgot about the quickly filling tub. Years ago, I witnessed how a home inspector almost caused a fire by turning on an oven – if the inspector first checked inside before turning the oven on, he would have noticed that is where the homeowner stored pans separated by paper towels.

There’s a lot going on during a home inspection to distract the inspector from their duties. And no one said home inspectors are supposed to super human or perfect; but there is an expectation that they are thorough. Not so much because they are paid professionals; but rather, they’re relied on for information about one of the highest cost purchases of a lifetime – your home.

When you first meet with your home inspector, they will tell you they are not perfect. However, they are supposed to follow “standards of practice.” Years before home inspectors were licensed, ASHI developed standards of practice as a means of establishing expectations placed on inspectors. Many of those standards have since been incorporated into state home inspector licensing laws.

Maryland’s home inspector licensing law (COMAR Title 9 Subtitle 36 Chapter 7) states that the inspector identify the scope of the inspection, and visually inspect “readily accessible areas” to determine it the items, components and systems are operating as intended, or are deficient. Further, to be in accord with the standards of practice, a home inspection: “Is intended to provide…objective information regarding the condition of the systems and components of a home at the time of the home inspection; Acts to identify visible defects and conditions that, in the judgment of the home inspector, adversely affect the function or integrity of the items, components, and systems inspected, including those items or components near the end of their serviceable life; May not be construed as compliance inspection…; Is not intended to be construed as a guarantee, warranty, or any form of insurance; Is not an express or implied warranty or a guarantee of the adequacy, performance, or useful life of any item, component, or system in, on, or about the inspected property…”

Given the limitations of the home inspection, home buyers are sometimes confronted with surprises about the condition of items that were not readily seen during the inspection, such as: the roof, chimney, foundation, and HVAC. However, you can limit subsequential issues by having a licensed contractor further examine those areas during the inspection period.

By Dan Krell
Copyright © 2016

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October 14, 2016July 13, 2019

Liberty, housing, private citizens

Since its inception, the Consumer Financial Protection Bureau (consumerfinance.gov) has had many advocates and many critics. While many point to the CFPB’s staunch protection of consumers, some have argued that the independent agency has too much power with little oversight. And this week’s opinion from the United States Court of Appeals in the case of PHH Corp v. Consumer Financial Protection Bureau seems to side with CFPB’s detractors – and highlights liberty, housing, private citizens.

As you know, the CFPB was created in the aftermath of the financial crisis by the passing of Dodd-Frank in 2010. Dodd-Frank (also known as the Dodd–Frank Wall Street Reform and Consumer Protection Act) came at a time when politicians wanted to reign in financial institutions and businesses. In order to carry out financial reform, Dodd-Frank created a number of oversight boards and agencies in an expansive piece of legislation that covered many areas spelled out in over 2,000 pages. And even in its behemoth size, Dodd-Frank left much of the reform regulations to be written by agencies and its unelected officials – including the CFPB.

The CFPB has issued many new rules and have fined many banks and lenders. Some of the new rules have fundamentally changed the relationship between the consumer and the bank. For example, the TRID (TILA-RESPA Integrated Disclosure) rule that went into effect this year which not only changed how settlements are conducted but can levy stiff a penalty for each violation.

The case PHH Corp v. Consumer Financial Protection Bureau, appeared as if a seemingly “bad” mortgage lender was pushing back against fines and penalties for doing wrong. (PHH Corp was fined $108 million by the CFPB for mortgage re-insurance deals with company affiliates, even though it claimed to have followed HUD’s previous rule of paying a reasonable market rate.) But there’s more to this story, and it highlights exactly the what the CFPB’s critics have complained about – the CFPB’s independence from oversight and guidance. The case is about the CFPB’s authority to change the rule and retroactively apply it to PHH Corp.

Judge Kavanaugh wrote: “This is a case about executive power and individual liberty. The U.S. Government’s executive power to enforce federal law against private citizens – for example, to bring criminal prosecutions and civil enforcement actions – is essential to societal order and progress, but simultaneously a grave threat to individual liberty.”

He continued to say that “…the Director of the CFPB possesses enormous power over American business, American consumers, and the overall U.S. economy. The Director unilaterally enforces 19 federal consumer protection statutes, covering everything from home finance to student loans to credit cards to banking practices. The Director alone decides what rules to issue; how to enforce, when to enforce, and against whom to enforce the law; and what sanctions and penalties to impose on violators of the law…That combination of power that is massive in scope, concentrated in a single person, and unaccountable to the President triggers the important constitutional question at issue in this case.”

The result is that the CFPB will continue to operate and go after bad actors in the financial world. However, the recent appellate ruling will likely change the scope and focus of its operations, as the CFPB will be under the “ultimate supervision and direction of the President.” This case and the opinions of the Court can be found here (https://www.cadc.uscourts.gov/internet/opinions.nsf).

By Dan Krell
Copyright © 2016

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September 3, 2016July 18, 2019

Think resale when home buying

A common question, especially among savvy first time home buyers, is what will the resale value be like when they sell? Of course they are not asking for a specific price, but rather they question if the future home buyer will find the home just as desirable as they do. In other words, think resale when home buying.

That is a good question, since your home is one of the largest investments you’ll ever make; and you want to make sure you’re making a sound investment. Some things to keep in mind when buying a home and keeping an eye to the resale includes: focusing on current desirability; keeping the home complimentary to the neighborhood; considering added value; and not going overboard with updates and upgrades.

Ask yourself what attracted you to the home you’re purchasing and you’ll have a number of items that probably will make it desirable to the future home buyer. Most likely at the top of the list is the location. “Location, location, location” may be cliché, but it holds true. Items such as the home’s accessibility to metro and major commuter routes are important, along with its proximity to neighborhood and local amenities. Other top attractors to the home possibly include the living space and back yard.

Consider the future plans for the area, as it could affect the home’s resale. You can view the master plan for the county and specific localities on the Maryland-National Capital Park and Planning Commission’s website (montgomeryplanning.org). You can decide if the home you’re about to buy will be impacted by some future development or zoning change.

Another resale factor is how the home compares to its neighborhood cohorts. Is the home similar or does it obviously different? Has the current owner modified the existing living space in any way? Have they converted a three-bedroom home into a two-bedroom home; or similarly, added a bedroom by taking space from an existing bedroom or living area? Such modifications can make the home feel cramped and smaller and affect future resale.

Think about how the home seller updated and upgraded the home. Although not all updates add value, many will increase the home’s appeal to buyers. Keep an eye on the kitchen, bathrooms, and flooring, as home buyers typically consider these as high cost upgrades and can affect resale value. Ask the seller if they hired licensed contractors for major renovations and additions. Also, check for appropriate permits, and ask for plans and invoices.

Additionally, do your due diligence when it comes to “green” upgrades. Although the home seller may have considered the investment into green upgrades money saving, they are not always reliable and can be expensive to repair. And it may be all the rage among home owners, solar panels may come with lease payments and/or replacement costs with little or no net savings; so it’s a good idea to ask for associated lease agreements and utility bills, as well as replacement and maintenance costs.

When it comes time for you to sell, don’t go overboard when with updates and upgrades. Contrary to belief, doing too much to the home could have a minimal return on your investment, or even decrease the value. Updates and upgrades should be comparable to similar homes in the price range to maximize return on your investment. Also, steer clear from short lived trendy designs. Experts recommend to focus on function and substance when making upgrades.

By Dan Krell
Copyright © 2016

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