Buying a home isn’t easy. There are a number of things that can and will go wrong, from the financing falling through, to the appraisal coming in low, to seeing your offer on that dream house get trumped by another buyer.
Adding to the difficult and sometimes competitive process is timing the transaction. Is now the right time to buy? Are home prices still falling? When will they rise?
While it’s nearly impossible to time your home purchase perfectly, there are a few things you can do to minimize your downside risk.
One tip I’d like to highlight has to do with functional obsolescence, which is essentially home price depreciation caused by a loss of building utility.
Specifically, if the property you purchase doesn’t look like the others around it, if may suffer in value.
You’ve probably seen a street in your neighborhood or somewhere nearby where one home stands out above the rest.
Perhaps it has been completely remodeled, or has features that aren’t the norm for the area; stuff like ornate marble pillars and/or a huge iron gate surrounding the property that make it look like the Taj Mahal.
Whatever it is, the home doesn’t look like the others, even though it may be much more aesthetically pleasing and seemingly more expensive.
These characteristics are known as over-improvements, because they’re too lavish for the surrounding area.
As a result, the property value will be dragged down by those nearby, because you’re only as strong as those around you.
Conversely, if you buy a property that isn’t as picture perfect as those close by, but the amenities are fairly similar, you should see a value boost as a result.
So keep that in mind if you’re thinking of buying a property or remodeling your current home (see best and worst home improvements).
This post was written on December 8, 2009
Real Estate Q&A: “Who qualifies as a first time home buyer?”
With all the fuss about the first-time home buyer tax credit, you’re probably wondering if you’re eligible.
Well, the tax credit can only be used towards the purchase of a primary residence, meaning a home you actually intend to live in full time, no vacation homes or investment properties.
Additionally, you (and your spouse if applicable) must not have owned a principal residence in the three years prior to purchase to qualify.
If you meet these requirements, you can take advantage of the first-time home buyer tax credit, which just got extended from November 30 to April 30, 2010.
The tax credit can be as high as $8,000, but may not exceed 10 percent of the purchase price of the property.
You’re entitled to receive the full tax credit if you’re income is $125,000 or less for single tax filers, and $225,000 for joint tax filers.
That’s up from $75,000 and $150,000, respectively; the extension of the tax credit has also been accompanied with a “move-up tax credit,” so even if you don’t qualify as a first-time home buyer, you can take advantage.
To qualify for the move-up tax credit, you need to have used your current property as a primary residence for five of the past eight years.
Of course, the move-up credit seems like a bit of a waste, because who in their right mind would sell right now with prices in the dumps and buy a new property given the tight lending environment and uncertainty?
Seems like a bit of a stretch by the interested parties (real estate agents, home builders, etc.).
This post was written on November 16, 2009
If you want a good idea as to what your home might sell for, or what one may cost, you need to go local; forget about national home prices.
Who cares if home prices are falling in Denver if they’re rising in Boston, and vice versa? What about home prices sold in my neighborhood?
If you look at home prices sold in and around your area, and you’ll get a much better representation of what to expect if you decide to jump into the housing market.
That’s step one; step two is getting the latest sales information, because home prices can and will change rapidly, and appraisals are based largely on recent comparable sales.
Last week, real estate information provider Redfin announced that it can now deliver 1.4 million near-real-time sales records.
“Comparative Market Analyses are one of the real estate industry’s ‘killer applications,’” said Michael Smedberg, leader of Redfin’s query & statistics team, in a press release.
“But they’re often shrouded in mystery; agents have direct access to data such as prices and photos for just-sold homes, but buyers rarely do.”
“Without that direct access, consumers have had to rely on the expertise and availability of their agent, and this in turn made it hard to figure out on their own what to offer or ask for a listing.”
Previously, consumers could only access data based on public records that Redfin claims is delayed between two to eight weeks, at which time home prices could change by as much as 5%.
Going forward, you can access sales information via MLS-powered records within 15 minutes of a property being taken off the market by clicking on the “recently sold” tab in neighborhood, city, and region views on Redfin.
So if you’re in the market to buy or sell a home, you may want to keep an eye on this handy tool. It could help you make an offer for a home, set the right listing price, or gauge when home prices will rise in your neighborhood.
This post was written on November 10, 2009
There’s been a ton of talk about home price declines over the past couple years, but now a bit of optimism is starting to shine through, at least in select markets.
So, when will home prices rise, and why? SmartMoney.com wrote a post on signs to look for that should increase the value of your home.
It’s not easy to time the market, but looking out for these positive signs could help you buy (or sell) at a better time.
Fewer Foreclosures
When foreclosure filings and related sales dip, there will be less of a drag on home prices in a given area.
Foreclosures have fallen from their record highs, but that’s only after a heap of government intervention and taxpayer dollars, so we won’t know if things have really improved for a while.
Falling Inventory
When housing inventory falls, home prices will rise; it’s basic supply and demand.
One of the major problems tied to the current housing bust was an excessive supply of new homes, and demand just couldn’t keep up.
That’s why you’ll see entire neighborhoods in fringe areas around the country that now look like foreclosure ghost towns.
List-to-Sale Price Ratios
When the listing price of a home and the selling price are more aligned, it’s a good sign that home prices are rising in the area.
Nationally, homes are currently selling at a 5-10% discount below their asking price; keep an eye on this metric and you may be able to get a head start over other buyers.
Lower Unemployment
Unemployment (and underemployment) has been on the rise for some time now, and with that comes an inability to pay the mortgage.
It also means fewer buyers in the housing market, deflating home values in the process.
Income Levels
Conversely, when income levels rise, home prices rise.
If the median household income of a certain neighborhood rises, there’s a good chance home prices will move higher as well.
More borrowers will be able to make mortgage payments and maintain and/or even improve their homes, lifting area home prices.
This post was written on November 2, 2009
Home buying Q&A: “Can you purchase a home with no money down?”
It wasn’t long ago that you could purchase a home with nothing down, and even get assistance with the closing costs!
Back in 2006, 100% financing was the norm and you were a fool to put anything down; heck, there was even a mortgage lender named “Zero Down Mortgage.”
But these days have come and gone, leaving scores of foreclosures in their wake, making lenders think twice about lending so loosely in the future.
Nowadays, the only place you’ll be able to find 100% financing will be via government programs offered from the USDA or the VA.
Of course, these loan programs aren’t available to everyone, so in reality, you’re probably going to have to put some money down if you want that new home (how much should I put down on my home?).
Fortunately (or unfortunately depending on your viewpoint), prospective homebuyers are still able to put down as little as 3.5% to purchase a property via an FHA loan.
Government-owned Freddie Mac also offers its Home Possible® 97 Mortgage, which requires as little as 3% for down payment (loan to value ratio).
Some credit unions will allow you to purchase a home with as little as 5% down, while the larger banks and mortgage lenders want 10% these days.
Perhaps the best way to see all your options with regard to down payment is by getting in touch with a broker, who can shop your loan scenario with various lenders and explore their numerous programs.
Tip: Make sure you’ve got seasoned asset reserves in the bank to cover several months of mortgage payments and closing costs.
This post was written on October 22, 2009
There’s been plenty of talk of a housing bottom, but home prices may not rebound for another decade, according to a report from Celia Chen of Moody’s Economy.com.
She said home prices won’t return to their 2006 peak levels until 2020, and even later in certain hard-hit areas like California, Nevada, Arizona, Michigan, and Florida.
For some unfortunate homeowners, they won’t see home prices back to peak levels until 2030, increasing the likelihood of strategic default.
After all, if you were one of the unlucky ones who purchased a home in or around 2006, and are now upside down on your mortgage, does it really make sense to wait another 20 years just to break even?
Essentially the areas that saw the biggest run-up in home prices saw the biggest subsequent declines, and as a result, will take the longest amount of time to reach those heights in the future.
Farm belt states, along with Texas and Oklahoma, where home prices fell less than 10 percent, could rebound within seven years.
Chen noted that those who doubt the length of the housing recovery should look at Japan, where residential home values are still down by about half from their peaks reached 15 years ago.
By the time home prices actually stop falling (yes, they’re still dropping), they’ll be down about 43 percent from peak prices reached in 2006, as measured by the benchmark Case-Shiller home price index.
This post was written on September 21, 2009
Real estate Q&A: “Are foreclosures listed on MLS?”
Foreclosures are plentiful at the moment, and though interest has grown for such transactions, not everyone is looking to scoop one up.
Though they could turn out to be bargain, they’re more often riddled with delays and headache.
The good news is foreclosures are listed on the MLS, or Multiple Listing Service, which is fairly easy to access to for free.
A lot of local real estate agents allow you to peruse listings on the MLS via their personal websites; this is obviously a more cost efficient means of access than those sites that make you pay or register, but it typically only shows results within the area they cover.
Once you’ve found a local real estate agent’s website that offers free MLS access, you can select certain criteria to narrow your search.
If you’re looking for foreclosures on MLS, you’ll probably be interested in listings that are active short sales, or those that are REO (real estate owned) or bank owned.
The latter are essentially foreclosures, so you can see what distressed property is selling in your area if you’re interested in trying to snag one.
Keep in mind that the listing agent may not mention that the property is in foreclosure, or bank owned, so you may have to do some digging.
But you might be able to tell from the picture, price, or description that the property is in foreclosure as well.
Also, not all foreclosures make it on to the MLS for one reason or another, so be sure to check with your local bank(s) to see if there are any properties nearby that aren’t listed.
Happy searching!
This post was written on September 1, 2009
More real estate Q&A: “Are home prices still falling?”
Lately, a lot of Americans have been wondering if the home price carnage is going to continue throughout 2009, or finally turn around now that’s there been an uptick in home sales.
While there has been a rise in both existing and new home sales over the past few months, the data must be taken with a huge grain of salt.
Before you get too excited, it’s important to understand that mortgage rates are hovering seem all-time lows thanks to government intervention and spending.
Additionally, there’s the homebuyer tax credit to take advantage of, along with the fact that were right in the thick of the homebuying season.
Sales are also being compared to some dismal numbers, both the early months of this year and sales from last year, which have been pretty abysmal compared to everything on record; so if home sales weren’t up, it’d be a disaster
So what’s all this news about the median home price rising in some markets?
Well, some cities have experienced month-to-month improvements in median home price, but home prices in many areas are still dropping as well, including hotspots like Las Vegas and Miami.
Of those cities that have experienced increases in median home price, much, if not all of it, can be attributed to a shift in what’s actually selling.
Most of the home sales over the past year have been distressed properties, mainly foreclosures selling at the low-end of the market.
As a result, the median home price was dragged down artificially, meaning home prices looked as if they plummeted, but it’s really just an exaggeration.
Unfortunately, the reverse is true as well, with recent median home prices in California and some parts of Arizona only climbing because more expensive properties are selling.
This pushes the median home price higher, but it’s really just a reflection of more expensive homes being sold out of necessity by those unable to make mortgage payments or facing unemployment.
Looking forward, home prices will probably continue to fall thanks to rising unemployment numbers, coupled with a housing inventory (much of it held off the market by the banks) that is still too large to substantiate current prices.
Of course, real estate is local, and home prices can rise and fall in different parts of the country at different times, so it’s important to research your own area and not worry so much about the national figures.
This post was written on August 31, 2009
A friend of mine recently asked, “Is real estate still a good investment?”
I paused for a moment, and then we had a long discussion about it.
On the surface, without thinking too deeply, real estate is always a good investment.
Yes, that’s what the interested parties, like real estate agents and mortgage bankers, always say and want you to believe.
But I’ll give them some credit, because it’s pretty much true, real estate is a good investment.
However, that doesn’t mean it’s always the right time to buy real estate, there’s a difference.
I guess the point I’m trying to make is that yes, real estate is a good investment, but if you can get it for 20% less next year, why buy it now? Why not rent?
Sure, you run the risk of missing out on your dream property or investment, but chances are there will be something similar available down the road.
Looking at the real estate market right now, I don’t think it’s the best time to buy, but real estate is still a good investment.
History has told us that, and there’s no reason to believe that will change because of the unprecedented housing bust we’re currently dealing with.
There’s been a lot of news about real estate prices dropping like a rock, making many wonder if now’s the time to buy.
But the numbers are a bit misleading because they’re based on sales, many of which happen to be the lowest priced homes on the market, like foreclosures and other distressed property.
Home prices really haven’t fallen that much in desirable areas throughout the country, so you might get a rude awakening if you go house shopping thinking you’re going to get the deal of a lifetime.
But in the long run, you’ll probably do okay if you purchase a property and hold onto it, as history has told us that real estate is always a good investment.
This post was written on August 11, 2009
Everyone seems to be interested in real estate, mainly because you can make a lot of money without too much education.
In other words, you can make the same money doctors and lawyers make without going to school for a decade.
But “do real estate agents make good money?”
Some would argue yes and some would say no, but like anything else, it really depends.
The big difference between real estate agents and doctors and lawyers, aside from the obvious, is that the pay is based on commission and performance, and not a salary.
So a real estate agent will only make good money if they work hard and make sales; doctors and lawyers, on the other hand, tend to make big money more consistently.
I forget where I heard this, but there was some statistic about real estate agents and their sales figures over a year.
It said the average real estate agent sold just a single property in a year, so clearly there were a lot of agents out there making not very good money, if any at all.
Of course, the numbers are likely dragged down by those who register as real estate agents but never follow through, or those that simply do it as a side job.
If you work hard and dedicate yourself, you can make very good money, as real estate commission is typically 5-6% of the sales or purchase price.
On a $500,000 property, that’s $25,000 to $30,000, so it’s not a bad haul.
Of course, that figure is generally split between the buying agent and selling agent, unless you’re both.
Then there is the split taken by the office you work for, and any other costs, which reduces your actual pay even more, though there are 100% commission programs as well.
This post was written on July 9, 2009