Are Home Values REALLY at Record Levels?

Last week, the National Association of Realtors (NAR) released their Existing Home Sales Report. The report announced that the median existing-home price in June was $236,400. That value surpasses the peak median sales price set in July 2006 ($230,400). This revelation created many headlines exclaiming that home prices had hit a “new record”:

Wall Street Journal: Existing-Home Prices Hit Record

USA Today: Existing home sales surge, prices hit record

Though the headlines are accurate, we want to take a closer look at the story. We do not want people to believe that this information is evidence that a new “price bubble” is forming in housing. NAR reports the median home price. That means that 50% of the homes sold above that number and 50% sold below that number. With fewer distressed properties (lower valued) now selling, the median price will rise. The median value does not reflect that each individual property is increasing in value. Below are the commentsfrom Bill McBride, the author of the esteemed economic blog Calculated Risk. McBride talks about the challenges with using the median price and also explains that in “real” prices (taking into consideration inflation) we are nowhere close to a record.

“In general I'd ignore the median sales price because it is impacted by the mix of homes sold (more useful are the repeat sales indexes like Case-Shiller or CoreLogic). NAR reported the median sales price was $236,400 in June, above the median peak of $230,400 in July 2006. That is 9 years ago, so in real terms, median prices are close to 20% below the previous peak. Not close.”

Earlier this week, the Wall Street Journal covered this issue in detail. In this story, Nick Timiraos explained that this rise in median prices is nothing to be concerned about:

“Does this mean we have another problem on our hands? Not really…There may be other reasons to worry about housing affordability by comparing prices with incomes or prices with rents for a given market. But crude comparisons of nominal home prices with their 2006 and 2007 levels shouldn’t be used to make cavalier claims about a new bubble.”

Bottom Line

Home values are appreciating. However, they are not increasing at a rate that we should have fears of a new housing bubble around the corner.

Cost Across Time Average Interest Rate and Mortgage Payment

Some Highlights:

• With interest rates still around 4% now is a great time to look back at where rates have been over the last 40 years.
• Rates are projected to go up a full percentage point by this time next year according to Freddie Mac.
• The impact your interest rate makes on your monthly mortgage cost is significant!
• Lock in a low rate now while you can!

Top 10 Things that can go wrong during a Real Estate Transactin

Every day in real estate is a fresh, new day!  I think that's what most of us love about this business - there's never a day that is just 'mundane' - in fact, no two transactions are ever the same!  Some go so smoothly, you arrive at the Closing table and can't believe that there hasn't been on bump in the road.  

Others...well, not so much!

10.  Buyer remorse - In an era of bidding wars, it's human nature to want to 'WIN!'  A few days after winning the bidding war, especially if buyers have gone significantly higher than list price, buyers tend to feel a little remorse.  Some, to the extreme, ultimately making the decision to terminate the Contract to purchase the home.

9.  Unknown structural issues arise - One of the BEST ways to avoid this is to have a pre-inspection when you are listing your home.  This way, if there are structural issues, you have time to remedy them prior to the sale.  Buyers are typically terrified (albeit they don't always need to be terrified) of structural issues, which can cause a cancellation of the sale.

8.  SURPRISE!  You've got MOLD! - This can also be a deal-killer and again, can be avoided with a pre-inspection.

7.  Buyer has been pre-approved - but, wait!  Buyer has NO CREDIT! - Yes, this has happened to a buyer for one of my listings.  The lender issued a pre-approval letter based on income only.  The buyer had NEVER had a car loan, credit card or student loan and therefore, when the documents got to the underwriter, the file was rejected!  Of course, the deal fell through but, the seller was able to quickly take the back-up buyer and seal the deal!

6.  WAIT!  You can't take it with you! - Listing agents review the Offer to Purchase in NC with a Seller when the listing documents are prepared.  I also review the FIXTURES with Sellers when we receive an Offer.  MOST Sellers get it but, on occasion, a Seller will remove an item deemed a permanent fixture and the Buyer is NOT happy about it!  This typically happens with items like curtain rods, chandeliers and even refrigerators.  Conversely, Buyers think that all appliances remain with a property - check to be certain that you've included your request for refrigerator, washer or dryer - items that ARE personal property in our state but, may not have been in your exit state.

5.  Sellers failed to properly complete repairs - As a Seller, your best best is to hire a contractor to make all of the repairs.  Be certain that this contractor offers a warranty as well.  Having someone handle all repairs also makes your life easier - after all, you are packing to move and this is a very busy time for you.  You honestly don't need to be running to Lowe's to buy caulking or plumbing items - just let someone else handle that work for you.  This way, if it is not done properly, the responsibility falls on the contractor to come back and make it right.

4.  Lender drops the ball - One reason to be SURE to use your Realtor® recommendations when it comes to lenders.  Just as all real estate agents are not created equally, nor are lenders!    Thankfully we realized this (yes, the Seller side realized it first!) in time to have the new lender meet the Closing deadline.  We (the Sellers) demanded that the Buyers utilize one of our preferred lenders who got the job done in 10 days...appraisal and all!

3.  Faulty appraisal - This happens for a variety of reasons but, the top two reasons are that the appraisers have difficulty showing appreciation within a community whereas it's easy to show depreciation.  The second reason this occurs is appraisal management companies send appraisers from out-reaching areas and they are not familiar with the comparable properties enough to generate an accurate appraisal.  

2.  Buyer Converts Auto Lease to Purchase (or, buys a new car!) - This doesn't fly with lenders if your debt-to-income ratios are tight.  It's best not to make ANY purchases with credit or your savings until AFTER the Closing.  This way, you aren't in jeopardy of losing your new home and all of the money that you've spent in preparation of being the new homeowner (inspection costs, due diligence fees, earnest money deposit, appraisal costs, Title search costs, etc.)

1.  The SELLER decides not to SELL! - Yes, I've had a BUYER change their minds on the day before Closing (and even the day OF Closing) but, never a Seller!  We had a Buyer who had worked through inspections, appraisal and was headed to Closing, only to receive the call, "I'm so sorry but, the Seller has changed their mind - they're not going to be selling their home!"  Buyers have the right to recoup damages, including but, not limited to any and all costs associated with their home purchase.  If you're thinking of selling your home, be 100% sure that you are prepared to go through with the sale before you list your home for sale!

So you want to buy a house! But first you need a car. And you want to get married in a big wedding, and then have some babies. Don’t forget their college education, and your master’s degree, and the looming specter of retirement.

Life often feels like a series of savings goals. Once you’ve paid off your student loans, there are a half-dozen other major costs lying ahead. The most ominous? Buying a house—a dream that might seem unachievable when you want other things, too.

But having it all doesn’t have to be stressful. Here are some financial adviser-approved techniques for saving for multiple goals—all at the same time.

1. Review your spending

There’s a reason this is the first bullet point in any financial advice story: You can’t make any serious savings inroads without first taking a good, hard look at your spending.

Before diving into hard-core budgeting, financial adviser Cheryl Vesely of Balance Financial Planning always forces her clients to analyze their current spending.

Don’t try to whittle down your spending without tracking it first—otherwise, you’ll set unrealistic goals and be disappointed when you don’t achieve them. Vesely recommends starting by evaluating fixed expenses, such as streaming TV services or your gym membership.

Here’s another tip: Search for purchases where the amount you spend exceeds your joy.

“Your fourth pair of shoes is not as fun as your third pair,” Vesely says. “Try to step back a little on things you don’t appreciate as much.”

2. Prioritize (and visualize) your goals

Chances are good your down payment will be the biggest priority, but paying for your kid’s college might be up there, too.

Or perhaps you want a wedding in two years, and ideally you’d like a home in five—how do you choose which goal to focus on?

For many home buyers, it’ll come down to which timeline has the most flexibility, says Jason Hull, a financial planner in Fort Worth, TX.

If you’ve already set a date for your wedding, for instance, maybe you need to consider renting for another year or two.

And when saving gets tricky, think about the future. Actually, don’t just think. Visualize.

“Mentally imagine you are watching a movie where future you is starring, doing whatever it is you’re trying to do,” Hull says. This helps combat the part of your brain that wants instant gratification.

3. Try the ‘snowball method’

If you’ve ever tuned in to financial guru Dave Ramsey’s radio show, you’ve probably heard him advocate for the debt snowball method: Knock out your debts one at a time, from smallest to largest.

That means you shouldn’t feel bad about putting most of your savings toward something smaller first—again, assuming your home purchase isn’t on a tight deadline. Accomplishing one financial goal might be the push you need to keep saving.

4. Separate your money

If you do decide to save for multiple goals at once, make sure to keep your savings in different accounts.

Many banks easily allow you to create as many accounts as you’d like, but Vesely also recommends online options such as SmartyPig. Keeping the money separate helps mentally separate “house savings” from “car savings.”

You can also choose different types of savings accounts that are better suited to each goal: For a short-term goal such as a wedding or new car, keep your money in a risk-averse account, like a traditional savings or a money market account. For the longer term, Hull says, you might want to buy a low-cost index fund.

“You can’t guarantee you’re gonna get a return,” he says. “But chances are historically pretty decent you’ll beat inflation by doing that.”

While we’re at it: If your workplace allows it, set up a rule that automatically deposits a portion of your paycheck into a separate account. Decide what percentage of your income you want to dedicate to each savings goal and allocate it directly. As they say: Out of sight, out of mind.

5. Decide if you need to sacrifice

We know, we know—all of your goals are very important. But if you’re struggling to create a financial map that gets you everything you’re looking for in a reasonable timeline, maybe it’s time to evaluate what needs to go.

“You might have to look for a smaller house or decide to spend less on a wedding,” Vesely says. “You might have to step back a little bit and look for another way to do it.”

Maybe your home budget should be the cost of your dream home—minus the cost of your dream wedding. Think realistically about what you can afford. When you’re looking for a lot out of life, you’ve got to be willing to make sacrifices.

Homeownership: A Key to Well-Being in Retirement

There has been much talk about homeownership and whether it is a true vehicle for building wealth. A new report looks at the impact owning a home has on the financial wellbeing of people closing in on their retirement years (ages 55-64). In recently released study by the Hamilton Project, Ten Economic Facts about Financial Well-Being in Retirement, it was revealed that: 1. Middle-class households near retirement age have about as much wealth in their homes as they do in their retirement accounts.

“Over the past quarter century the largest single source of wealth for all but the richest households nearing retirement age has been their homes, which accounted for about two-fifths of net worth in the early 1990s and accounts for about one-third today.”

2. Home equity is a very important source of net worth to all but the wealthiest households near retirement age.

“Home equity is an important source of wealth for middle income households, accounting for more than one-third of total net worth for the second, third, and fourth quintiles of the net worth distribution… The fifth quintile has a much larger share in business equity—almost a quarter—than any other quintile. (The figure leaves out the bottom quintile of households because they have negative net worth. It is likely that these households will rely almost exclusively on Social Security in retirement.)”

Here is an asset breakdown for the middle 20% of Americans determined by median net worth ($165, 720):Obviously, the data again proves that homeownership has a big role in building wealth for American families

The Main Reason You Should Not Wait to Buy…

The Joint Center for Housing Studies at Harvard University recently released their 2015State of the Nation’s Housing report. The report concentrated on the challenges renters in this country are facing because of the diminishing supply of quality rental units and dramatically escalating rents. However, there was also information buried within the report that revealed that now is definitely the time to buy your first home or move-up to the home of your family’s dreams. With home prices still below peak values and mortgage rates still near historic lows, the monthly mortgage payment on a median priced home is less than at almost any time in the last 25 years. Here is a graph which helps visualize the data from the report:

Bottom Line

With home prices increasing and mortgage rates projected to increase, now is the time to buy.

Should I Rent My House Instead of Selling It?

The results of Fannie Mae’s June 2015 National Housing Survey, were just released showing that more and more homeowners are warming up to the idea that now may be a great time to sell their home. The amount of respondents that stated that now is a good time to sell rose three percentage points to a survey high of 52%; which may translate to a healthier market as more homes are listed in the coming months. At the same time “the percentage of respondents who expect home rental prices to go up rose to 59% – a new survey high.” Doug Duncan, senior vice president and chief economist at Fannie Mae, gave this insight: “The expectation of higher rents is a natural outgrowth of increasing household formation by newly employed individuals putting upward pressure on rental rates.” There is a chance that those who believe rental prices will rise may consider renting their house rather than selling it at this time. However, if you have no desire to actually become an educated investor in this sector, you may be headed for more trouble than you were looking for. Are you ready to be a landlord? Before renting your home, you should answer the following questions to make sure this is the right course of action for you and your family.

10 Questions to ask BEFORE renting your home

1. How will you respond if your tenant says they can’t afford to pay the rent this month because of more pressing obligations? (This happens most often during holiday season and back-to-school time when families with children have extra expenses).
2. Because of the economy, many homeowners cannot make their mortgage payment. What percentage of tenants do you think cannot afford to pay their rent?
3. Have you interviewed experienced eviction attorneys in case a challenge does arise?
4. Have you talked to your insurance company about a possible increase in premiums as liability is greater in a non-owner occupied home?
5. Will you allow pets? Cats? Dogs? How big a dog?
6. How will you actually collect the rent? By mail? In person?
7. Repairs are part of being a landlord. Who will take tenant calls when necessary repairs come up?
8. Do you have a list of craftspeople readily available to handle these repairs?
9. How often will you do a physical inspection of the property?
10. Will you alert your current neighbors that you are renting the house?

Bottom Line

Renting out residential real estate historically is a great investment. However, it is not without its challenges. Make sure you have decided to rent the house because you want to be an investor, not because you are hoping to get a few extra dollars by postponing a sale.

What is a Housing Bubble? Is One Forming?

The recent talk of Greece and its financial challenges has some questioning whether the U.S. could also return to the crisis we experienced in 2008. Some are looking at the rise in real estate values and wondering whether we are in the middle of another housing price bubble.

What actually is a price bubble?

Here is the definition according to Jack M. Guttentag, Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania:

“A price bubble is a rise in price based on the expectation that the price will rise. Sooner or later something happens to erode confidence in continued price increases, at which point the bubble bursts and prices drop. What makes it a price bubble is that the cause of the price increase is an expectation that the price will increase, which sooner or later must reverse itself.”

Does Professor Guttentag believe we are in another housing bubble? In a recent article, he explained:

“My view is that we are a long way from another house price bubble. Home buyers, lenders, investors and regulators now understand that a nationwide decline in house prices is possible -- because we recently lived through one.”

What are home prices doing?

Though home values are continuing to appreciate, the acceleration of the increases has slowed to year-over-year numbers which reflect a healthy housing market. Here is a chart showing year-over-year appreciation since January of last year:We can see that appreciation rates have dropped from double digit numbers to more normal rates of 5% or lower.

Bottom Line

We think Nick Timiraos of the Wall Street Journal put it best in a recent tweet:

“Predictions of a new national home price bubble look unfounded for now, according to data.”

13 Small Savings that Make a Major Impact

Trying to stick to your budget? Here are 13 small savings ideas that make a major impact.
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13 Small Savings That Make a Major Impact
We’ve all heard this advice before: if you want to save money, you need to cut back on spending, save your receipts, and balance your budget on a regular basis. While this is sound and practical advice, it’s not as easy as it seems. So whether you are saving to buy a new home, saving for a great vacation, or just trying to add to your “emergency fund,” the following areas will help you to identify senseless spending:

Save with DIY landscaping. Do your research, and landscape with plants that require little maintenance. Use a barrel to collect rainwater, and use it when watering your lawn.
Create visual reminders. Create a visual reminder for things, like debt or the cost of something you’re saving for. Seeing these numbers on a regular basis will help you commit to cutting back.
Keep lists. To cut down on groceries, make a list. Use this same strategy when buying clothing to decrease spending and ensure you buy what you need, rather than what looks good in the store.
Eliminate paper. Instead of buying paper towels and napkins, opt for dish towels and cloth napkins.
Lower utility bills. Close closet doors so you don’t heat or cool unnecessary spaces. Challenge yourself to only one month of A/C use in the summer, or use your fireplace during colder months so you can lower your heat. Install things like ceiling fans and light dimmers for an economical and environmental impact. Cut out your landline; bundle your home, phone, and internet for a cheaper price; or consider cutting your cable. There are many alternatives that will allow you to continue watching your favorite TV shows and movies for a lower monthly bill.
Plan out everything. Planning your weekly meals will help you eliminate dining out. Plan for and balance your monthly entertainment activities to avoid overspending.
Avoid bank fees. Total the amount of fees you’ve incurred over the past six months to a year (including ATM fees), and consider changing accounts or even banks to eliminate unnecessary costs.
Shop smarter. Making a grocery list is a no-brainer, but many grocery store websites now allow you to create a list online and will give you a total for all of your purchases. This method allows you to make substitutions when necessary, and stick to the sales, as well as your budget. And, when you’re trying to cut down your grocery bill, cut out the meat. Even if it’s only one day per week, it will have an effect on your overall spending.
Balance entertainment spending. Everyone needs to blow off steam, but there are many savings sites out there that can help keep expenses down by offering deals or coupons.
Cut back on transportation costs. Carpooling to and from work, even if only for one or two days a week, can save a lot on gas and car maintenance. Pick a mutual location, and invite as many coworkers as you can.
Do the math. Everyone knows that it’s far cheaper to BYO coffee rather than stop for a cup on the way to the office, but don’t believe that single-cup, at-home coffee machines are more economical. To really save, stick to a good, old-fashioned pot of coffee.
Break your piggy bank. This may sound more like advice for college students, but the effects will surprise you: save your loose change! Clean out your car, gather change from the bottom of your purse, and check your pockets. Designate a jar, and don’t cash it until it’s full.
Reconsider your necessities. If you are accustomed to getting your hair trimmed every six weeks, push it out for eight or ten weeks at a time, or trim it up yourself. The same applies to pet grooming. Ask yourself, “Is this a want or a need?”
Whether your saving up for your first home or a home renovation, budgeting doesn’t have to be a burden. Start right in your home with these 13 small savings, and audit your energy costs as an easy way to start saving for any project, large or small. When saving for a home, there are certain steps to follow that we’ve outlined in our roadmap to homeownership that can make the process easier for any first-time home buyer.

- See more at: http://americanlifestylemag.com/sharable/move7009/#sthash.VAMnPj6p.B7PYswk7.dpuf

The Impact of Rising Prices on Home Appraisals

The fact that residential home prices are increasing substantially in most regions of the country is music to the ears of homeowners. However, if you are in the process of selling your home, make sure you realize the major challenge a hot real estate market creates. Each house must be sold twice; once to a buyer and a second time to an appraiser who represents the bank that will grant the purchaser a mortgage to buy the home (unless it is an “all cash” purchase). In a real market with escalating prices, the second sale may be the more difficult. And a recent survey by Quicken Loans reveals that the gap between what a homeowner believes is the value of their home compared to an appraiser is widening.This could lead to an increase in the percentage of real estate transactions being challenged by a ‘short’ appraisal (where the appraiser value is less than the contracted price of the home).

Bottom Line

Whether you are a buyer or a seller, you must be prepared for this possibility as it may result in a renegotiation of the price of the home.

Happy 4th of July