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January 10, 2020November 23, 2021

Home Buying Strategies 2020

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.

June 8, 2019June 8, 2019

Great time to buy a home

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 30^th 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 3^rd 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 30^th 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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June 3, 2019November 23, 2021

Overpaying First-time Homebuyers

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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May 6, 2019May 6, 2019

Home buying process simplified

An article by Tracey Barbour for the Alaska Business Monthly (Younger buyers partial to homeownership, home-buyer education, online resources: akbizmag.com; September 2017) describes the growing phenomenon of millennial homeownership. Not surprisingly, many millennial home buyers are taking advantage of home buyer assistance programs. Because millennials grew up with the internet, you might think that they would rely less on professionals when home buying. But the opposite seems to be true. A majority of millennials prefer to connect with a single point-of-contact when applying for a mortgage (and likely when dealing with real estate agents). However, millennials do rely on the internet when it comes to understanding the home buying process. They spend copious amounts of time doing their own research on the home buying process.

It’s not just millennials, but most home buyers are taking advantage of online and digital resources to learn about the home buying process. Maybe it’s because we live in an era of information overload that home buyers are more aware of the many factors that need to be considered before buying a home. Regardless, the abundance of “home buying process” resources are helping home buyers decide if they are suited to buy a home, assisting with financial planning of buying a home, finding down payment assistance, mortgage application information, and so much more.

It used to be that if you were a first-time home buyer, you relied heavily on your real estate agent for the education of the home buying process. You placed a great deal of trust on their guidance. The home buying process was envisioned as a step-by-step formula to purchasing a house. The purpose of explaining the home buying as a process was to reduce the major aspects of home buying into distinct parts and make it seem simple and trouble-free.

The home buying process is a big ball of stuff…

Today, the standard “home buying process” as explained by real estate agents seems nebulous and lacking detail. Maybe even a little pedestrian. Maybe it’s because real estate agents tried to make their job easy and have control, but the word “process” incorrectly suggests that there is an exact order that is “one size fits all.” However, the home buying process is more aptly described by adapting the “timey-wimey” quote of the 2007 episode of Dr. Who (Blink) to say “People assume that home buying is a strict progression of cause to effect, but it is more like a big ball of home buying stuff.”

Moreover, all home buyers are different. Not just in their preferences, but also in their needs and expectations. And thus, home buyers will experience the process differently. One thing I can confirm from eighteen years of listing and selling homes is that all transactions are different.

But don’t discount the value of the traditional “home buying process” meme. Consider it a framework of mini-processes that are critical to buying a home. Each mini-process will be proceeding at its own pace parallel to other processes.

Choose your buyer agent well. The role of your buyer agent should go beyond helping you visit homes and writing an offer. Your agent should be there every step of the way to settlement helping you maneuver through the “big ball of home buying stuff.” When going through home buying process you can encounter pitfalls and setbacks that are time consuming and emotionally draining. Your agent should be able to offer guidance on coping and resolving any potential issues.

Original published at https://dankrell.com/blog/2019/05/06/home-buying-process-simplified/

By Dan Krell
Copyright © 2019

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March 10, 2019November 23, 2021

Housing market mini-cycles

In a statement last year, NAR chief economist Lawrence Yun discussed the housing market’s recovery since the Great Recession (Realtors Chief Economist Reflects on Past Recession, What’s Ahead for Housing; nar.realtor; August 28, 2018). Citing increasing homeownership rates and addressing the recent home sale slowdown, Dr. Yun believes that concerns about a significant housing slump are unsubstantiated. Instead, we may be going through housing market mini-cycles.

Dr. Yun is not the only one pointing to affordability (home prices and mortgage rates) and lack of home sale inventory as causes of market disruptions. But his statement is almost trite: “…even as mortgage rates begin to increase and home sales decline in some markets, the most significant challenges facing the housing market stem from insufficient inventory and accompanying unsustainable home price increases…”

Housing market mini-cycles and the economy

The housing market, like the overall economy, goes through cycles of boom and bust. It’s been about eleven years since the last recession, and many are saying we’re overdue for another one. But if the economic cycles, as described in 1876 by economist Henry George and modernized by Glenn R. Mueller, accurately include recovery, expansion, hypersupply, and recession, there is no clear phase to describe recent housing activity. Instead, what we are experiencing is housing market mini-cycles.

Most understand the concept of the broad economic boom and bust cycle. But most are unaware of the mini-cycle that manifests as repeat periods of short-term growth and slowdown. Recessions typically have broad effects on the economy, where as mini-cycles are are fast cycling and specific to economic sector. So, a complete housing market mini-cycle can last several months or longer and may not spill over to other sectors.

Since 2013, the housing market has undergone at least three mini-cycles of growth. These cycles peaked with record sales volumes, only to be set back by months of sluggish home sales. The causes of the housing market mini-cycles are debatable and, like a recession, clear in hindsight. Of course, Dr. Yun and other industry experts are likely to be correct saying that home prices (affordability) and inventory are to blame. However, there may be other reasons worth exploring as well.

Micro-economic factors are playing a large role in the housing market mini-cycle. Take for example the increase in employee telecommuting. There is an abundant research pointing to how telecommuting has affected the commercial real estate market. These studies point to increased office space vacancies due telecommuting. Companies are downsizing offices because of the reduced need for space as employees are working from home. This trend is recognizable in real estate brokerages. Real estate office spaces are shrinking as the industry becomes increasingly “virtual.”

Telecommuting is also impacting home sales. According to Global Workplace Analytics (globalworkplaceanalytics.com) “Regular work-at-home, among the non-self-employed population, has grown by 140% since 2005, nearly 10x faster than the rest of the workforce or the self-employed.” Currently, there are about 4.3 million employees that work from home at least half the time. As businesses are increasingly hiring a telecommuting workforce, workers opt to stay in their current residence rather than relocate near their new employer.

Does housing market mini-cycles lead to recession? Maybe the the mini-cycle is a brief market correction that helps avoid the broader effects of recession. Take for instance the three housing market mini-cycles that recently boomed in 2013, 2016, and 2017-2018. During these mini-cycles, home prices soared and home sales broke recent records (since Great Recession).

Current economic indicators (at the time of this writing in March 2019) point to a positive home sale season. The Bureau of Labor Statistics (BLS.gov) most recent unemployment statement was 4.0 percent (which included government shutdown stats). The Consumer Price Index remains stable (the CPI-U was last reported unchanged). Real average hourly earnings was reported to increase 0.2 percent from December to January. And after a three-month decline, the Conference Board (conference-board.org) reported a rebound in the Consumer Confidence Index. Given the winter housing slump, real estate may be on everyone’s mind again in this spring.

Original published at https://dankrell.com/blog/2019/03/10/housing-market-mini-cycles/

By Dan Krell
Copyright © 2019.

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