Is it time to buy a home?

The Clouds Haven't Quite Parted, But the Long-Term Case for Home Ownership Is Looking Stronger

Back in June 2006, when the housing market peaked, the prospect of a five-year national housing bust seemed unimaginable to most people. And yet here we are, with the latest Standard & Poor's Case-Shiller index showing that prices hit new bear-market lows, falling back to 2002 levels nationally and to 1990s levels in some battered regions.

Despite all the gloom, however, there are growing indications that it is a good time to buy. Mortgage rates, which fell to 4.55% for the week ending June 2, according to Freddie Mac, are near 50-year lows. Homes have become more affordable than they have been in years: According to Moody's Analytics, the ratio of home prices to income is now 20.9% lower than the 15-year average through 2010, and 12.5% lower than the 1989-2004 average. A historic glut of homes, meanwhile, has created a buyer's market: There were about 15 million vacant homes in the U.S. last year, according to John Burns Real Estate ConsultingInc.—some 3.1 million more than normal.

Such conditions might not last long. Moody's Analytics predicts that the number of distressed sales will begin to fall in 2013, and that prices will begin to edge upward then. Home building is at a virtual standstill, so the supply overhang isn't likely to get much worse. Meanwhile, demographic indicators such as "household formation"—the number of new households each year—are on the rise, and promise to take a bite out of the glut in coming years.

The upshot: "While we might not see rapid growth in the next couple of years, there are a tremendous number of positive signs that could lead to a rebound," says Anthony Sanders, a real-estate finance professor at George Mason University.

The short-term outlook isn't encouraging. Job growth remains weak, foreclosure sales are making up more of the market, and economists are predicting that home prices will fall more in the coming months.

But the long-term benefits of homeownership remain very much intact. For now, at least, you can deduct the mortgage interest on your taxes—a big perk for people in higher tax brackets. You get to paint your walls any color you wish, without having to clear it with a landlord. And assuming you can buy a home for about the same price as you can rent one, buying will give you the ability one day to live rent-free. Come retirement time, a paid-off mortgage means your monthly expenses are significantly reduced, and you have a chunk of equity to play with.

So what might the next five years look like? Once the foreclosure mess begins to clear up, say housing economists, the traditional drivers of the housing market—demographics, affordability, loan availability, employment and psychology—should take over.

Here is a glimmer of what the future may hold: While overall home prices fell by 7.5% in April over the same period a year earlier, according to CoreLogic, a Santa Ana, Calif., provider of real-estate data and analytics, if you exclude distressed sales, prices were off just 0.5%. So if you are in a market that isn't battered by foreclosures, you may be close to a bottom already.

Five key factors that will govern local markets over the next several years:

Lending

As rates hover near historic lows, experts expect banks to ease borrowing standards over time.

Psychology

If prices stabilize, it could tip the balance away from fear and pull more buyers back into the market.

Affordability

In several markets, it's becoming cheaper to own than to rent.

Demographics

The rate of "household formation" is expected to climb in coming years.

Employment

The strength of the housing recovery depends on job growth.

Why Use a REALTOR®?

All real estate licensees are not the same. Only real estate licensees who are members of the NATIONAL ASSOCIATION OF REALTORS® are properly called REALTORS®. They proudly display the REALTOR "®" logo on the business card or other marketing and sales literature. REALTORS® are committed to treat all parties to a transaction honestly. REALTORS® subscribe to a strict code of ethics and are expected to maintain a higher level of knowledge of the process of buying and selling real estate. An independent survey reports that 84% of home buyers would use the same REALTOR® again.

Real estate transactions involve one of the biggest financial investments most people experience in their lifetime. Transactions today usually exceed $100,000. If you had a $100,000 income tax problem, would you attempt to deal with it without the help of a CPA? If you had a $100,000 legal question, would you deal with it without the help of an attorney? Considering the small upside cost and the large downside risk, it would be foolish to consider a deal in real estate without the professional assistance of a REALTOR®.

But if you're still not convinced of the value of a REALTOR®, here are a dozen more reasons to use one:

1. Your REALTOR® can help you determine your buying power -- that is, your financial reserves plus your borrowing capacity. If you give a REALTOR® some basic information about your available savings, income and current debt, he or she can refer you to lenders best qualified to help you. Most lenders -- banks and mortgage companies -- offer limited choices.

2. Your REALTOR® has many resources to assist you in your home search. Sometimes the property you are seeking is available but not actively advertised in the market, and it will take some investigation by your agent to find all available properties.

3. Your REALTOR® can assist you in the selection process by providing objective information about each property. Agents who are REALTORS® have access to a variety of informational resources. REALTORS® can provide local community information on utilities, zoning. schools, etc. There are two things you'll want to know. First, will the property provide the environment I want for a home or investment? Second, will the property have resale value when I am ready to sell?

4. Your REALTOR® can help you negotiate. There are myriad negotiating factors, including but not limited to price, financing, terms, date of possession and often the inclusion or exclusion of repairs and furnishings or equipment. The purchase agreement should provide a period of time for you to complete appropriate inspections and investigations of the property before you are bound to complete the purchase. Your agent can advise you as to which investigations and inspections are recommended or required.

5. Your REALTOR® provides due diligence during the evaluation of the property. Depending on the area and property, this could include inspections for termites, dry rot, asbestos, faulty structure, roof condition, septic tank and well tests, just to name a few. Your REALTOR® can assist you in finding qualified responsible professionals to do most of these investigations and provide you with written reports. You will also want to see a preliminary report on the title of the property. Title indicates ownership of property and can be mired in confusing status of past owners or rights of access. The title to most properties will have some limitations; for example, easements (access rights) for utilities. Your REALTOR®, title company or attorney can help you resolve issues that might cause problems at a later date.

6. Your REALTOR® can help you in understanding different financing options and in identifying qualified lenders.

7. Your REALTOR® can guide you through the closing process and make sure everything flows together smoothly.

8. When selling your home, your REALTOR® can give you up-to-date information on what is happening in the marketplace and the price, financing, terms and condition of competing properties. These are key factors in getting your property sold at the best price, quickly and with minimum hassle.

9. Your REALTOR® markets your property to other real estate agents and the public. Often, your REALTOR® can recommend repairs or cosmetic work that will significantly enhance the salability of your property. Your REALTOR® markets your property to other real estate agents and the public. In many markets across the country, over 50% of real estate sales are cooperative sales; that is, a real estate agent other than yours brings in the buyer. Your REALTOR® acts as the marketing coordinator, disbursing information about your property to other real estate agents through a Multiple Listing Service or other cooperative marketing networks, open houses for agents, etc. The REALTOR® Code of Ethics requires REALTORS® to utilize these cooperative relationships when they benefit their clients.

10. Your REALTOR® will know when, where and how to advertise your property. There is a misconception that advertising sells real estate. The NATIONAL ASSOCIATION OF REALTORS® studies show that 82% of real estate sales are the result of agent contacts through previous clients, referrals, friends, family and personal contacts. When a property is marketed with the help of your REALTOR®, you do not have to allow strangers into your home. Your REALTOR® will generally prescreen and accompany qualified prospects through your property.

11. Your REALTOR® can help you objectively evaluate every buyer's proposal without compromising your marketing position. This initial agreement is only the beginning of a process of appraisals, inspections and financing -- a lot of possible pitfalls. Your REALTOR® can help you write a legally binding, win-win agreement that will be more likely to make it through the process.

12. Your REALTOR® can help close the sale of your home. Between the initial sales agreement and closing (or settlement), questions may arise. For example, unexpected repairs are required to obtain financing or a cloud in the title is discovered. The required paperwork alone is overwhelming for most sellers. Your REALTOR® is the best person to objectively help you resolve these issues and move the transaction to closing (or settlement).

Inflation, all we've never wanted.

The Go-Go's may have sang about vacation being all we've ever wanted in the 1980's, but if we were to re-write the lyrics about last week, we could sing about inflation. Read on to learn why this matters.
We saw a double dose of inflation news last week and while the Producer Price Index (which measures inflation at the wholesale level) remained unchanged in August, the year-over-year Core Consumer Price Index (CPI) jumped up to hit the upper-end of the Fed's threshold of 2%.

So why is this significant? The concept is very simple: If inflation rises, investors in Bonds demand a higher yield to offset the lost buying power inflation imposes on a fixed payment. And as home loan rates are tied to Mortgage Bonds, this would mean home loan rates move higher.

What’s more, in light of last week’s higher consumer inflation reading, the Misery Index—which is the Unemployment Rate (9.1%) plus the level of year-over-year headline Consumer Price Index (3.8%)—is at a disconcerting 12.9, which is the highest in nearly 30 years. Our great country needs a whopping dose of certainty, clarity and confidence...and in the absence of it, this index will continue to rise.

Remember: Once inflation starts to emerge it can manifest rather quickly. Future inflation readings will be closely watched to see if a trend higher is emerging, and last week’s elevated number will certainly heat up the debate surrounding more stimulus, as more money into the system fuels inflation further. If inflation heats up even more, the Fed will likely back off their "low rates until mid-2013" mandate. Inflation really does change everything, and I will continue to follow this story closely and keep you informed.

The bottom line is that home loan rates remain near historic lows, and now is still a great time to purchase or refinance a home. If I can answer any  questions at all for you or your clients, call or email me anytime.

How to understand where you are ... Financially

The first step toward leaving credit challenges behind is understanding where you are right now. Because your credit report is used by lenders to assess your finances, it's a good idea to review it yourself beforehand. This gives you the chance to correct any errors and identify any continuing problems.

You can order a free credit report each year from each of the three national credit companies. Examine it closely to ensure it's correct. Your explanations of any negative entries can play an important role in determining your mortgage options.

Credit Reporting and Scoring

While many lenders use credit scores to help make lending decisions, other criteria play a significant role in determining the level of risk involved in making a loan. Those other criteria include income and debt, employment stability, and how the borrower's payment history has changed over time.

Factors that affect your score

There are five basic factors that determine your credit score. The levels of importance shown here are for the general population, and will be different for each individual:

1. Your payment history: What is your track record.

2. Amounts that you owe: How much is too much?

3. Length of your credit history: How established is it?

4. New credit: Are you taking on more debt?

5.Types of credit in use: Is it a "healthy" mix?

When lenders review your credit history, they are trying to determine how likely you are to repay the loan. How well you've done that in the past is one indicator of how likely you are to do it in the future.

The credit score identifies to the lender the level of the future risk associated with your credit history, as compared to hundreds of thousands of other credit reports. The higher the score, the lower the risk.

Moving Up

My goal is to do what it takes to meet your immediate financing needs and work with you to help you understand how to establish a positive payment history that can help you improve your standing in the future. As you move up the credit ladder, you'll have an increasing number of programs and rate options available, giving you even more ways to improve your financial security.

For more information, contact me today!

Remodeling? Don’t Forget the Permit

Home owners who fail to get a building permit for a remodeling project can jeopardize a sale.

When home owners take on a remodeling project, they’re often far more focused on choosing glistening fixtures for a new bathroom or debating the type of granite to use on a kitchen countertop than, say, navigating the intricacies of the building permit process. That could be a huge mistake, however, and it may not even come to light until the house is put up for sale. Ignoring local approval requirements not only poses safety and legal problems but also can potentially derail an otherwise smooth sale.
Home owners using licensed contractors for remodeling work typically don’t have to get involved with permitting. Most licensed contractors will handle the cumbersome process for them—filling out the paperwork with the municipality, collecting fees, and being present for the required inspections, says Michael Hydeck, president of the National Association of the Remodeling Industry. But when home owners tackle do-it-yourself projects or use unlicensed contractors, they risk problems later.
The permit process varies widely from city to city and state to state). But the purpose of the document is the same everywhere: It offers ­assurance by a municipal building department that the work being done meets all safety codes.

Ask Sellers Before You List

Home owners may be asked about permits in the process of selling a home. At closing, they may have to disclose any remodeling work they did and verify permits. A home inspector evaluating a property for a buyer may want to know whether a permit was obtained. Furthermore, the buyer’s appraiser may want to see permit records to check the legality of any home renovations.
“If no permits are found and it’s obvious the home has been renovated, the bank will likely refuse to make the loan,” according to the American Bar Association’s book Legal Guide to Home Renovation (Random House Reference, 2006). If the permitless work isn’t discovered until after closing, the home’s value could even be subject to a lawsuit, such as in cases when an addition added extra square footage to the home’s value but the construction wasn’t done legally with a permit.
That’s why contractors and legal experts say real estate practitioners are well advised to ask sellers before they take on a listing for a renovated home: “Did you get a permit for that?”
Remodeling contractor John Price in Merced, Calif., has been called in to help home owners after permit problems have been uncovered. He once worked with a home owner who installed siding by himself, but added it too far down along the wall of the house, so it rubbed up against dirt and picked up moisture. Eventually the poor installation led to mold growing in the drywall throughout the inside of the house.
Some home owners, however, are tempted to sidestep the permit process not wanting to pay the fees (municipalities generally charge a minimum issuing fee—such as $25—as well as an additional fee—sometimes 1 percent—of total construction costs), or they might not want to risk delaying a project or a sale by waiting for city inspections (obtaining permits can take anywhere from a day to six weeks or more).
“People have strong incentives to cheat, and some of that lays squarely on the feet of policymakers who have sometimes created a system that is time-consuming and frustrating,” Price says.
But caught without a permit during resale, home owners may face big consequences. They may have to pay fines (possibly up to quadruple the original permit cost) or may have to tear the project down and redo it.

Virtually No Job Is Too Small

Home owners making any changes to the structures of a home will likely need a permit—and you may need more than one, Price says.
While kitchen and bathroom remodels and housing additions are obvious permit candidates, people may not realize they might also need one for such projects as installing a window, adding a new light switch, or replacing a shower. “There are not too many jobs you don’t need a permit for,” Hydeck adds. “It’s better to be safe than sorry.”

It's a small world after all.

The wild ride over the last few weeks continued again last week, as the US markets danced to the tune of the European debt and economic crisis. Here's what it means to home loan rates here in the US.

Even inflation hasn't stopped Bonds. Last week, consumer inflation and producer inflation came in above expectations. Remember inflation is the archenemy of Bonds and home loan rates, so hotter inflation would normally negatively impact Bonds and home loan rates. But even last week's inflation news didn't impact Bonds.
Seeing Bonds dismiss that inflation news indicates that the Bond market senses that the economy (which is already hardly growing) is in a very vulnerable position with things in Europe uncertain and gloomy at best. And when the situation deteriorates further, it may push many world economies into a recession.

It's all about Europe. US Bonds - including Mortgage Bonds - have been seen by the markets as a safe haven bid on existing and growing fears that Europe's debt crisis is coming to a head…and global growth, which is already anemic, is being threatened further. Not helping the situation was the news last week that there is no concrete solution to the European debt problems. Last week, French President Nicolas Sarkozy and German Chancellor Angela Merkel met. However, following the meeting, Sarkozy stated that "EuroBonds can be imagined one day, but at the END of the European integration process, not at the BEGINNING."

That was a pretty clear message to the financial markets that the creation of a EuroBond is not within the remote daydreams of Germany, which is the strongest nation in Europe and who will determine whether it gets created or not. So let's be clear, the German taxpayers want no part of a EuroBond, since it would use the surplus that Germany has worked hard to create to fund the poor habits and debt of weaker and less responsible member States.

The bottom line is that the fear and uncertainty right now is pretty overwhelming, which is supporting Bonds and home loan rates. But Bonds are at "nose bleed levels" and sentiment can change very quickly.

Majority of Renters Say Owning a Home is a Top Priority

Most Americans still believe that owning a home is a solid financial decision, and a majority of renters aspire to home ownership as a long-term goal. According to the 2011 National Housing Pulse Survey recently released by the National Association of Realtors®, 72 percent of renters surveyed said owning a home is a top priority for their future, up from 63 percent in 2010.

Seven in 10 Americans also agreed that buying a home is a good financial decision while almost two-thirds said now is a good time to purchase a home. The annual survey, which measures how affordable housing issues affect consumers, also found that more than three quarters of renters (77 percent) said they would be less likely to buy a home if they were required to put down a 20 percent down payment on the home, and a strong majority (71 percent) believe a 20 percent down payment requirement could have a negative impact on the housing market. “Despite the economic setbacks Americans have experienced in today’s current climate, it is clear that a strong majority still believe in home ownership and aspire to own a home,” said NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I. “However, achieving the dream of home ownership will become increasingly difficult for buyers if they are required to make a 20 percent down payment, which may be a reality for many of tomorrow’s buyers if a proposed Qualified Residential Mortgage rule is adopted. That is why Realtors® are strongly urging regulators to go back to the drawing board on the proposed rule.”

Defining the QRM rule is important because it will determine the types of mortgages that will generally be available to borrowers in the future. As currently proposed, borrowers with less than 20 percent down will have to choose between higher fees and rates today — up to 3 percentage points more — or a 9-14 year delay while they save up the necessary down payment.

Over half — 51 percent — of selfdescribed “working class” home owners as well as younger non-college graduates (51 percent), African Americans (57 percent) and Hispanics (50 percent) who currently own their homes reported that a 20 percent down payment would have prevented them from becoming home owners.

Pulse surveys for the past eight years have consistently reported that having enough money for a down payment and closing costs are top obstacles that make housing unaffordable for Americans. Eighty-two percent of respondents cited these as the top obstacle, followed by having confidence in one’s job security.

The survey also found respondents were adamantly against eliminating the mortgage interest deduction. Two-thirds of Americans oppose eliminating the tax benefit, while 73 percent believe eliminating the MID will have a negative impact on the housing market as well as the overall economy.

“The MID facilitates home ownership by reducing the carrying costs of owning a home, and it makes a real difference to hardworking American families,” said Phipps. “Home ownership offers not only social benefits, but also long-term value for families, communities and the nation’s economy.

We need to make sure that any changes to current programs or incentives don’t jeopardize our collective futures.” When asked why home ownership matters to them, respondents cited stability and safety as the top reason. Long-term economic reasons such as building equity followed closely behind. On a local level, respondents said neighbors falling behind on their mortgages and the drop in home values were top concerns. Foreclosures also continue to remain a large concern, with almost half of those surveyed citing the issue as a problem in their area.