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.

Rent vs Buy puzzle

rent vs buy
The Rent vs Buy decision is a personal puzzle (infographic from keepingcurrentmatters.com)

For some, committing to buying a home is an easy decision.  However, some struggle rationalizing homeownership.  Adding to the confusion are the attempts to persuade tenants to be home owners by flaunting its benefits and financial savvy.  To be sure, there are personal and financial factors that go into deciding Rent vs Buy.  However, the reality is that the Rent vs Buy question is a complicated personal puzzle.

Are you weighing the decision of Rent vs Buy?  Consider that homeownership does have benefits over renting.  Besides having a place to live, the consensus is that homeownership provides stability and belonging to a community.   Numerous studies have associated being a home owner with increased well being and better health outcomes.  Research by the Harvard University’s Joint Center for Housing Studies concluded that homeownership and growing wealth are associated (Herbert, McCue, and Sanchez-Moyano; Is Homeownership Still an Effective Means of Building Wealth for Low-income and Minority Households? Was it Ever? Joint Center for Housing Studies Harvard University, September 2013).

But frustrated home buyers are returning to their rentals because of inventory shortages, intense competition, and increased home prices can be aggravating.

The latest National Association of Realtors (nar.realtor) press release indicted a 1.5 percent decrease in home sales from the previous year.  Although home sales were weak for the previous four months, home prices have increased for the 70th consecutive month!  Nationwide median existing home prices increased 4.6 percent from the previous year to $264,800.  The lack of home sale inventory is partly to blame for the decreased home sales, which increases the upward pressure on home prices.

The Greater Capital Association of Realtors (gcaar.com) release of August housing data for Montgomery County is not much different from the national figures.  Single-family home sales in the county decreased 0.7 percent from the previous year.  Inventory is 8.3 percent below last year’s available homes for sale at the end of August.  But median home sale prices jumped to $443,000, which is an increase of 4.2 percent.

Those who are dissuaded from buying a home because of increasing home prices are facing rent increases.  The median rent for Montgomery County is $1,647.  But according to Healthy Montgomery (healthymontgomery.org), there is upward pressure on rent.  This is not just a local phenomenon, it is nationwide.  According to the Census Bureau (census.gov), some metropolitan areas and cities have experienced increases well over $300.  Rent increases are in part due to inflation and the increasing cost of owning a rental property.  However, tenants are mainly experiencing rent increases because of supply and demand.  Rental inventory is just as tight as home sale inventory.  The Census Bureau reported that the vacancy rate decreased year over year.  Additionally, the Census Bureau reported last year that the percentage of renters who moved during 2017 was the lowest recorded since 1988.

The robust economy has prompted the Fed to increase interest rates this year.  Another rate hike is expected this week.  According to Freddie Mac (freddiemac.com), mortgage rates have increased in anticipation of the Fed’s rate hike.  According to Freddie Mac’s Mortgage Market Survey, the average 30-year fixed rate mortgage is 4.65 percent.  Although mortgage rates are the highest in several years, rates continue to be historically low.

For many who continue to rent, they’re perspective may be justified by comparing housing costs.  The Trulia Rent vs Buy Calculator (trulia.com/rent_vs_buy) is a tool that compares these factors.  Paying rent for a long term may make sense if your rent is low.  However, buying can be a better long-term decision when comparing similar size properties and housing costs.

Consulting with  Realtor can help too. You can find out which is feasible Rent vs Buy. You can see if there are any homes for sale in your affordability range. You can also find out what rentals are available in your rent range.  Regardless of your Rent vs Buy decision, your real estate agent can assist you with housing and the process for home buying or renting.

By Dan Krell.
Copyright © 2018.

Original located at https://dankrell.com/blog/2018/09/27/rent-vs-buy-puzzle

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Home buyer savings account?

Maryland first-time home buyers may soon have another program to help them buy a home.  Two related bills are making their way through the Maryland General Assembly to create a first-time home buyer savings account. If enacted, Maryland would join a handful of other states that have already enacted such programs to incentivize home buying.

home buyer savings account
Home buyer Savings Account (infographic from realtormag.realtor.org)

The bills are an effort to address the lack of first-time home buyer participation in the housing market. The lack of first-time home buyer participation has received a lot of attention since the Great Recession. Not just because of the rising costs of buying a home, but also because of the lack of home buyer savings. The lack of down payment was identified by the National Association of Realtors as one of the issues barring first-time home buyers from entering the housing market. The October 18th 2016 NAR news release (Five Notable Nuggets from NAR’s Home Buyer and Sellers Survey’s 35-Year History; realtor.org) also cited underemployment, student debt, and delayed family formation.

The idea of a home buyer savings account is not new. It was first conceived by Montana in the 1990’s as an incentive for home buyers to save money for down payment and closing costs. Virginia was the second state to enact a similar program in 2014. Several other states have since enacted similar plans, while others (including Maryland) have proposed such plans in their respective state legislatures.

The increased attention to first-time home buyer savings account during 2017 has made it a hot topic. While states are looking to provide state tax breaks for first-time home buyers, Rep. Mike Coffman of Colorado wants to provide federal tax incentives to first-time home buyers for saving down payment and closing costs. H.R.2802 First-Time Homebuyer Savings Account Act of 2017 was introduced in Congress last June by Rep. Mike Coffman of Colorado, and co-sponsored by Rep. Sean Patrick Maloney and Rep. Barbara Comstock. The bill has yet to make it out of the House Ways and Means Committee.

Rep Coffman stated in a press release:

The American dream of homeownership is getting harder and harder to attain for those starting out on their own these days, especially Millennials, because of the challenges involved in saving up for the down payment…The First-Time Homebuyer Savings Account Act  is a straightforward and bipartisan solution to this problem. If we can help Millennials attain homeownership, this would not only be a wise financial move for them, but would have broader positive financial impact for our economy as a whole

Maryland’s proposed first-time home buyer savings plan, introduced by HB0463 and SB0972, is currently being debated in the Maryland General Assembly. If enacted as introduced, the legislation would allow $50,000 to be deposited “state tax free” into an account for the purpose of buying a home in Maryland by a first-time home buyer. Any interest earned up to $150,000 would also be state tax free, as long as the interest is also used in said purchase. However, if the funds and interest are used for any other purpose, the holder of the account would be subject to state tax and penalties.

Would a first-time home buyer savings account stimulate interest in the housing market?

Lisa Prevost, writing for the New York Times, brought attention to Montana’s struggle to get first-time home buyers to participate in their savings plan (Tax Free Accounts for Homes: nytimes.com; August 8, 2013). At the time of Prevost’s article, the Montana Department of Revenue reported that “…no more than 225 people, and as few as 125, have participated annually since the program’s inception. Their annual deposits have averaged around $400,000.” Edmund Caplis, director of tax policy and research for Montana’s Department of Revenue, was quoted in the article as saying, “What you’ve got to understand is, this is people trying to get into their first home. For most working families, trying to pull together an extra buck is a stretch.

By Dan Krell
Copyright © 2018

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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.

First time home buyer assistance

home for sale

Are you a first time home buyer worried, overwhelmed, or intimidated by the process? You’re not alone.  First time home buyers have had the most difficulty getting back into the real estate market after the Great Recession.  Many would-be first time home buyers lack the financial resources, while others worry about the long term value.  However, there is probably no better time than now to buy your first home.

This is a first time home buyer market

first time home buyer
First time home buyer assistance (infographic from mgic.com)

You may be one of the many would-be first time home buyers who opted to continue to rent or live with their parents until the timing was right.  Many would-be home buyers did the same, as a 2106 Pew Research Center report pointed out the millennial housing trend that may be associated with the decline in the homeownership rate since the Great Recession (For First Time in Modern Era, Living With Parents Edges Out Other Living Arrangements for 18- to 34-Year-Olds; pewsocialtrends.org; May 24, 2016).  However, economic factors have significantly improved, and the housing market has stabilized.  So what’s holding you back?

Are you overwhelmed or intimidated by the home buying process?

First time home buyer
First time home buyer (infographic from keepingcurrentmatters.com)

Buying a home can seem intimidating, and overwhelming.  But it doesn’t have to be. On the Holmes and Rahe Stress Scale (Holmes & Rahe 1967), having a mortgage over $10,000 rates 31 (just above being foreclosed upon) and moving is rated as 20. This commonly used stress scale is cumulative, so the rating for buying a home is at least 51. However, being prepared can help you anticipate and deal with most circumstances that may arise.

Finding a professional and competent Realtor who will “be” with you throughout the process is highly important.  Of course, finding an agent whom you trust can be a process too.  It’s important to know your agent will be there for you, not only to answer questions and resolve your concerns, but to also represent your best interests.

What are your expectations?  Your home buying expectations are influenced by your experiences.  However you are also influenced by a combination of the media, relatives, friends, and co-workers.  Having very high and unrealistic expectations can not only increase your stress, but can but a wrench in the transaction before it starts. Discussing your expectations with your Realtor will determine if they are realistic or not.

Choosing your Realtor

Before deciding on the realtor you want to work with, informally talk to several about how they help first time home buyers.  Unfortunately, home buyer surveys (such as the annual National Association of Realtors Profile of Home Buyers and Sellers (nar.realtor)) suggest that the majority of home buyers and sellers typically hire the agent they first encountered.

Besides assisting in home searching and negotiating sales contracts, your agent should be by your side throughout the transaction.  Your agent should be available to you to help you maneuver the bumps and surprises that can derail your home purchase.

Even though you may not place an agent’s experience high in your list of agent characteristics,  a research study by Bennie Waller and Ali Jubran (“The Impact of Agent Experience on the Real Estate Transaction.” Journal of Housing Research 21, no. 1 (2012): 67-82) suggests otherwise.  They concluded that an experienced real estate agent can yield a better result than an agent with little or no experience.

Check your agent’s license.  Make sure your agent is a full time agent (meaning that the only job they have is selling real estate).  Don’t be shy about asking and calling your agent’s references.

First time home buyer down payment and closing cost assistance

If affordability, down payment and closing costs are a concern, apply for a first time home buyer assistance and/or grant program.  There are many programs available offered through local and state organizations. Your lender can help you find and apply to the programs for which you qualify.  Regular communication with your loan officer is important because the funding is limited annually and can quickly run out.

Locally, one of the mainstays for first time home buyer assistance is the Maryland Mortgage Program (mmp.maryland.gov).  The MMP is provided through the Maryland Department of Housing and Community Development, and funded by the Community Development Administration.  It is described as “…providing home loans and down payment assistance to Maryland’s working families to encourage responsible homeownership and build strong communities, working through a network of Maryland Mortgage Program lender organizations.”

MMP loans are just like other mortgages, except that they offer competitive rates and offer additional assistance in the form of Down Payment Assistance and Partner Match Programs (up to $8,500 from the Department and possibly more from partner organizations).  Some Partner Match programs offer homebuyer grants.  However, other Assistance programs are generally in the form of deferred, no-interest loans.

Combining Down Payment Assistance with a Partner Match program can significantly reduce the amount you need to buy your first home!  The Down Payment Assistance program is a loan of up to $5,000.  The loan is a zero-percent deferred loan, which is repaid when you pay off the main Maryland Mortgage Program mortgage when you refinance, or sell the home.

Department of Housing and Community Development has partnered with many organizations and employers that can provide you with additional assistance.  Your current employer may be a participant with the Partner Match program (check the Partner list at mmp.maryland.gov).  Local organizations also offer home buyer assistance (including the Moderately Priced Dwelling Unit Program) as well, such as the Housing Opportunities Commission (hocmc.org) and The City of Gaithersburg (gaithersburgmd.gov).

Original published at https://dankrell.com/blog/2017/07/09/first-time-home-buyer-assistance/

Copyright© Dan Krell
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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.