Renting vs Buying 2012

by Dan Krell © 2012
DanKrell.com

Inventories of homes for sale are at a five year low. The last time home inventories were this low, homes were sometimes selling as soon as you could put a “for sale” sign in the yard. For some, the recent shrinking inventories are a welcome sign of market equilibrium; even analysts at Barclay’s site low housing inventory as one indication of a housing comeback.

For others, however, the shrinking inventory is a sign that supply is just lessening to demand. Many individuals who might have previously thought of buying home are, for now, putting off home ownership. Many people are delaying family formation and do not want to be “anchored” by a home in a tight employment market. As Fed Chairman, Ben Bernanke, discussed in a speech given in February to the National Association of Home Builders, economic uncertainty has impacted the willingness to commit to home ownership. “…housing may no longer be viewed as the secure investment it once was thought to be…” (“Housing Markets in Transition”; federalreserve.gov).

As the inventory of homes for sale homes shrinks, the number of rentals increases- along with rent! According to rental statistics compiled by the Greater Capital Association of Realtors® (gcaar.com), fourth quarter 2011 rental listing volume increased about 89% compared to the fourth quarter 2010. Additionally, fourth quarter 2011 average rent list prices for Montgomery County increased 11.4% compared to the fourth quarter 2010; and the average rent price for Montgomery County increased 5.29% compared to the fourth quarter 2010.

More evidence of a strong rental market comes from the National Association of Home Builders (nahb.org): the Multifamily Vacancy Index (MVI) fell in the fourth quarter of 2011 indicating fewer rental vacancies. Additionally, the Multifamily Production Index (MPI), which measures builder and developer sentiment about current conditions in the multifamily market, is at its highest since 2005; the MPI component measuring developer sentiment for market-rate rentals is at an all time high.

The recent shift in the perception of homeownership has resulted in a falling homeownership rate: recent seasonally adjusted homeownership rates have been slowly declining from the all time high of 69.2% reached in the first quarter of 2005. The most recent seasonally adjusted homeownership rate (Q3 2011) is 66.1%, which is similar to the homeownership rate of 66.2% reported by the 2000 Census.

But evidence of a housing market attempting equilibrium comes from a May 9th National Association of Realtors® news release suggesting that home prices are stabilizing. First quarter 2012 “Median sales Price of Existing Single-Family Homes for Metropolitan Areas” compiled by the NAR indicate that although average national home sale prices decreased 0.4%, and average home sale prices for the Washington DC region increased 5.7% (realtor.org)

Reports of a recovering housing market may be supported by recent increases in home buyer activity. Market data reported by GCAAR indicates that “contracts” (also known as pending sales) increased 12.4% for the month of April (compared to April 2011); and increased 8.5% year to date 2012 (compared to the same period last year).

Even though home prices may be stabilizing, buying a home could still be cheaper than renting. According to Trulia’s Winter 2012 Rent vs. Buy Index (trulia.com), homeownership is less expensive (and may still be a better deal) than renting in 98 of 100 metro areas- including the Washington DC metro area.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of May 14, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

May 10, 2012

Real estate pent up demand or pent up optimism

by Dan Krell © 2012
DanKrell.com

The National Association of Realtors® latest news release of April 26th stated that March’s increased pending home sales figures is an indication that the housing market is recovering. The NAR reported that March’s Pending Home Sale Index (the PHSI is a “forward looking number indicating contracts signed”) increased from February’s PHSI and is much higher than the PHSI a year ago. Lawrence Yun, NAR Chief Economist, claimed; “The housing market has clearly turned the corner. Rising sales are bringing down inventory and creating much more balanced conditions around the county, which means home prices, will be rising in more areas as the year progresses…” (realtor.org).

Regardless of the newly sparked optimism for the housing market, a news release of one week prior (April 19th) indicated although March’s existing home sales were better than the previous year, the number of home sales declined from February’s totals. Dr. Yun cautioned that, “We were expecting a seasonal increase in home listings, but a lack of inventory has suddenly become an issue in several markets with not enough homes for sale in relation to buyer interest”…“Home sales could be held back because of supply factors and not by demand…”

My local market (Montgomery County MD, which includes Bethesda, MD, Chevy Chase MD, and Rockville MD) is part of the one of the stronger housing markets in the country, and pending sales are strong. The April 2012 Montgomery County Single Family Home Housing Report released by the Greater Capital Area Association of Realtors (gcaar.com) indicated that the number of contracts increased 12.4% compared to the same time last year, as well as increasing 8.5% year-to-date compared to the same time last year.

However, when looking at closing sales, pending sales may not be converting. Although the number of settlements of single family homes in Montgomery County is reported to have increased 5.8% in April 2012 from April 2011, the number of settlements year-to-date has decreased 1.6% from the same time last year.

Additionally, housing inventory continues to pose a problem for the market. Montgomery County single family home new listings decreased 14.6% in April 2012 from April 2011; while total actives reported for year-to-date through April 2012 decreased 15.1% for the same time last year. A diminished housing inventory is not so much an issue of meeting an increased buyer demand, as Dr. Yun has stated; but rather the issue may be that the declining housing supply may be lowering to meet buyer demand.

However, if housing inventories were not meeting an increased buyer demand, then we might be experiencing something akin to what occurred 2005 through 2006 (when homes sold relatively quickly, the average time on market was less than 30 days, and home prices were increasing). But we’re not experiencing the activity of 2005-2006. Additionally, the average single family home sale price for Montgomery County as reported by GCAAR is $496,144 for the month of April 2012 (compared to $515,161 for the same time last year).

I remember (and reported) similar optimisms declared in recent years; for example, an October 2009 report indicated that the PHSI was proclaimed to be at the highest level since March 2007. Enthusiasm for a market turning point would surely be welcome; but the data is inconsistent. And in fact, maybe current reports of pent up home buyer demand may be indicative of something else- a projection of pent up optimism.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of May 7, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

April 11, 2012

Is a home inspection good enough? Enter the Building Inspection Engineer

by Dan Krell © 2012
DanKrell.com

It wasn’t too long ago when home buyers wouldn’t even consider writing in a home inspection contingency in a contract for fear of losing the home of their dreams. Presently, of course, you can expect to find some type of home inspection in a most home purchase contracts. Some home buyers are even going a step further and employing Building Inspection Engineers for pre-purchase inspections.

With a little help from real estate agents, home buyers place high expectations on the home inspection. After all, the home buyer is making a big investment in their new home; they want to ensure the home’s condition is acceptable. To standardize expectations placed on home inspectors, the American Society of Home Inspectors (ashi.org) developed a standard of practice. According to ASHI, the home inspector will inspect the condition of visible and “readily accessible” home systems according to the standards of practice. The systems observed typically include: the HVAC system (heating/cooling depending on outside temperature); interior plumbing and electrical systems; the roof, attic and visible insulation; walls, ceilings, floors, windows and doors; the foundation, basement and structural components.

Even Maryland’s home inspector licensing law has a thing or two to say about what to expect from your home inspector. According to the standards of practice that are described in COMAR Title 9 Subtitle 36 Chapter 7, home inspectors are required to visually inspect the structural system and components, including the home’s foundation and framing. If the home inspector suspects that deterioration exists, they are required to probe the structural component, unless probing will damage the finished surface.

However, (usually at the time of the home inspection) the home inspector will briefly explain that they are limited. They will explain that the inspection is not “technically exhaustive,” and “may not identify concealed conditions or latent defects” (home inspection limitations are described in “Limitations and Exclusions” COMAR 09.36.07.03). So, maybe home inspectors are not the super heroes we make them to be.

Enter the Building Inspection Engineer. The Building Inspection Engineer may take the home inspection to the next level. The National Academy of Building Inspection Engineers (nabie.org) was established in 1989 to establish the highest standards in the home inspection, investigation and consultation industry. Along with verifying the qualifications of engineers and architects providing these services, the NABIE has developed the Building Inspection Engineer standards of practice.

According to NABIE, their members “have demonstrated competence involving inspection of buildings and building systems;” which can include site conditions and structure, as well as mechanical, electrical, plumbing and other major systems. The building inspection engineer’s perspective of the inspection is from a “demonstrated engineering judgment.”

The standards of practice set forth by the NABIE explain that the purpose of the inspection is identified and specified for each client, as the purpose can vary from a general inspection to investigating specific problems; the level of inspection and limitations are mutually agreed upon by the Building Inspection Engineer and the client. Typical inspections are defined by four levels: A) a visual inspection of systems and components; B) a functional inspection of systems and components; C) a specialized inspection that goes beyond level B and may require invasive techniques, material removal, or destructive testing; D) a specialized inspection with consideration to repair or improvement.

Regardless of the type of inspection you choose, make certain your inspector is licensed.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of April 9, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

March 8, 2012March 12, 2012

Buying a home when you’re short on cash

by Dan Krell ©2012
DanKrell.com

Given how the lending industry has changed, it’s easy to understand that you might think you need perfect credit and a 20% down payment to buy a home. Although credit requirements have been tightened, buying a home with little or no money is still possible.

Yes, it’s true that the financial and housing crisis forced banks and mortgage lenders to re-think the idea of easy money. Sure minimum credit scores have been raised to qualify for a mortgage, and you better believe that increased underwriting scrutiny and due diligence is the rule (rather than the exception). But, that doesn’t mean that you can’t get a mortgage if you don’t have a lot of cash. Depending on your situation, you may find yourself comparing conventional loans to FHA and VA.

Conventional mortgages have been traditionally thought of as requiring a 20% down payment; however, you may obtain a conventional loan with as little as a 5% down payment. The misconception that a conventional mortgage requires such a high down payment may have stemmed from the fact that you need a 20% down payment to circumvent private mortgage insurance. Additional confusion about conventional mortgages arises from the distinct programs that Fannie Mae and Freddie Mac offer for specific home buyers. For example, Fannie Mae offers a mortgage for as little as a 3% down payment through their “HomePath” financing– but this is only available to purchase Fannie Mae owned foreclosures.

Conventional financing typically allows you to receive financial assistance in the form of a gift and/or seller closing cost assistance. The documented gift must be from a relative. Although gift guidelines for some conventional programs have recently become more lenient; generally, you may be required to have a “minimum borrower contribution” (from your own funds) as your down payment decreases. However, a minimum borrower contribution may not be required if your down payment is 20% or more. Seller closing cost assistance may be limited depending on your down payment.

As conventional mortgage credit requirements became increasingly strict, more home buyers found that the FHA mortgage remained somewhat flexible. Certainly, buyers with credit dings found that FHA underwriting is more forgiving (provided borrowers provide substantiating documentation) than conventional; but another attraction to FHA financing is the low down payment. Although FHA increased the required minimum down payment- you may find that the current 3.5% down payment is still relatively low. Not having the 3.5% down payment does not have to deter you either; your down payment can be from a documented gift of funds. If you’re still short of funds, FHA allows the seller to assist with your closing costs (not to 6% of the sale price).

If you’re an eligible veteran or active duty service personnel, you may find that the VA offers a very good mortgage. As a benefit to your service, you could buy a home with no down payment (provided the purchase price does not exceed the VA appraisal of reasonable value and loan limits). Additionally, the VA allows the seller to pay your lender’s fees. Eligibility and other information can be checked on the VA website (www.benefits.va.gov/homeloans/veteran.asp).

Even though mortgage options exist, program guidelines change frequently- so check with your lender about qualifying. One final word: be prepared to document everything and follow your lender’s instructions.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of March 5, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

February 9, 2012November 11, 2012

Trending home designs

by Dan Krell
© 2012
DanKrell.com

Trending home designs

You might be amazed if you stopped to think about how much the home has changed over the years. From modest beginnings, when most homes were one or two rooms, the home has transformed from the humble shelter to today’s technological marvel that expresses your personality and popular tastes.

Early home architectural designs were very practical, and may have changed along with heating/cooling innovations. Before the furnace was a standard feature in the home, most homes were built around the fireplace; in very early homes, a central fireplace was where the homeowners cooked their food. Further advances in home design occurred as new building materials were developed; the use of drywall may be responsible for the spread of “tract housing” in the 1940’s and 50’s, as home builders realized they could make homes faster and more affordable.

However, a driving factor in today’s home designs is popularity with home buyers (because that’s what sells of course). The American Institute of Architects (aia.org) conducts the quarterly Home Design Trends Survey to track architectural trends and reveal what home buyers want in their homes. Besides the fact that a wounded housing market reduced the demand for the McMansion, what else is trending?

Economy and energy efficiency design features and appliances have been trending since the financial crisis. Since 2007, there has been a significant increase in demand for high efficiency furnaces, tankless water heaters, and more insulation.

Highlights of the recent Home Design Trends Survey (2nd quarter 2011) reveal how the economy has impacted home design. Most “Special feature rooms” have declined in popularity; except for home offices where people can telecommute, there was a significant decrease in the demand for interior greenhouses, media rooms, interior kennels, safe rooms, kid’s wings, and exercise rooms (demand for au-pair suites has remained steady). Informal living features continue to trend as people are increasingly staying home to entertain themselves and friends; a demand for “home-centered activities” spaces and outdoor living spaces are increasing. Requests for indoor-outdoor transition rooms, such as mudrooms, remain strong.

Special features continue to focus on energy efficiency, as well as increasingly on accessibility. Insulation seems to be a major home buyer focus as extra insulation or the use of alternative insulation techniques are in high demand.

As visitability laws gain momentum nationwide, home accessibility design features have increased in demand. First floor owner suites, height adjusted fixtures (sinks faucets and light switches), ramps, and even elevators have increased in popularity among home buyers.

Technological advances also dictate home buyer preferences. New energy efficient devices continue in popularity as well as low-maintenance products. High performance windows were a top requested item, as were water saving devices. Home buyers are also demanding more low maintenance engineered materials in their homes; such as floors, siding, and decking.

As technology changes, home design is anticipated to change as well. For example, some foresee that the demand for the home office to diminish as wireless communication technologies advance such that people won’t anchor themselves to one room as they work from home.

If you think that trending home design features are only for new homes, think again. Popular design features often filter into older homes as home owners renovate. As a design feature’s popularity increases, so does the chance it can be found at the Home Depot.

More news and articles on “the Blog”
This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of February 6, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

by Dan Krell © 2012 DanKrell.com

Trending home designs

You might be amazed if you stopped to think about how much the home has changed over the years. From modest beginnings, when most homes were one or two rooms, the home has transformed from the humble shelter to today’s technological marvel that expresses your personality and popular tastes.

Special features continue to focus on energy efficiency, as well as increasingly on accessibility. Insulation seems to be a major home buyer focus as extra insulation or the use of alternative insulation techniques are in high demand.

As visitability laws gain momentum nationwide, home accessibility design features have increased in demand. First floor owner suites, height adjusted fixtures (sinks faucets and light switches), ramps, and even elevators have increased in popularity among home buyers.

As technology changes, home design is anticipated to change as well. For example, some foresee that the demand for the home office to diminish as wireless communication technologies advance such that people won’t anchor themselves to one room as they work from home.

If you think that trending home design features are only for new homes, think again. Popular design features often filter into older homes as home owners renovate. As a design feature’s popularity increases, so does the chance it can be found at the Home Depot.

by Dan Krell
© 2012
DanKrell.com