Most Important Reasons to Buy a Home

When we talk about homeownership today, it seems that the financial aspects always jump to the front of the discussion. However, the study shows that the four major reasons a person buys a home have nothing to do with money. The top four reasons, in order, are:

• It means having a good place to raise children and provide them with a good education
• You have a physical structure where you and your family feel safe
• It allows you to have more space for your family
• It gives you control of what you do with your living space (renovations and updates)

The Home as an Investment

Though most people purchase a home for non-financial reasons, everyone realizes there is a money component to homeownership. Here is what they said on this issue:

• 65% of the general population (and 67% of homeowners) believe that homeownership is a ‘safe’ investment.
• 56% believe that homeownership has more potential as an investment than any other traditional asset class.
• 69% think that now is a good time to buy a home (this number has increased in each of the last two quarters)

Rent vs. Buy

We are always interested in the difference people see in renting vs. owning.

• 63% of renters have aspirations to someday own their own home
• 72% of renters think that owning is superior to renting
• 95% of homeowners see homeownership as a positive experience (4% see it as a negative experience) while 82% of renters see renting as a positive experience (17% see it as a negative experience)
• 96% of homeowners live in a single family residence while 46% of renters live in a multi-unit building

Bottom Line

Even in difficult times, Americans still realize the value of homeownership.

Before renting your home, you should take the following steps to make sure this is the right course of action for you and your family.

Set a consultation appointment with an eviction attorney

People rent out their homes assuming that every tenant will pay the rent every month. We must realize, because of the current economy, there are millions of people not paying their mortgage. There is a chance you may rent to someone who at some point can’t (or simply won’t) pay you the rent. Understand what the legal challenges of eviction could potentially be before deciding to rent your home

Interview property managers

If you are not a full-time investor, hire a professional to handle the property. You need someone to find a qualified tenant, collect the rent and manage the problems. You don’t want to have to make collection calls. What would you say if a tenant told you that they had enough money to either buy food for their children or pay you your rent but not both? You need a person experienced with these situations to help.

You also don’t want to receive calls at all hours of the day and night regarding maintenance issues or challenges a neighbor may be creating for your tenant.

Create an honest budget

Sure, you will receive revenue in the form of rent. However, don’t forget you will also have expenses. Some of the expenses you should consider:

• Mortgage Payment (unless there is no mortgage on the home you will rent out)
• Property Taxes
• Maintenance Expenses such as repairing or replacing: roof, heating/air conditioning unit, appliances, etc.
• Insurance – Check with your insurance company who may suggest or demand that you increase your liability coverage.

Bottom Line

Again, renting out residential real estate historically is a great investment. However, it is not without its challenges. Make sure you have decided that you want to rent the house because you want to be an investor, not because it looks like an easier way out than selling the house.

We can’t resist commenting on the story which recently appeared in the Wall Street Journal regarding Colby Sambrotto, the founder and former CEO of forsalebyowner.com. It seems the founding father and lifelong evangelist of the concept of selling your home without a real estate agent was forced to hire a broker to sell his home after failing at what he preaches others should do.

After failing to sell his NYC apartment on his own as a For Sale By Owner (FSBO), Sambrotto hired a broker and paid a 6% commission in order to get the job done. His personal experience helps refute some of the myths Sambrotto has been espousing for over a decade. Let’s look at two of those myths:

Myth #1 – You Will Pocket More Money Selling on Your Own

Most FSBO sites say you can save the commission by selling on your own. What happened in Sambrotto’s sale?

From the WSJ article:

“The broker, Jesse Buckler, said he told Mr. Sambrotto the apartment in the Lion’s Head building on West 19th Street near Sixth Avenue was priced too low and wasn’t drawing the right buyers.

By May, it went into contract, he said, after attracting multiple offers. It closed in the last few days for $150,000 more than the original asking price.”

Myth #2 – The Internet Alone Can Sell Your Home

Many have said that, with the introduction of home search on the internet, hiring an agent is no longer a necessity. What happened to the FSBO guru when he attempted to only depend on the internet?

From the WSJ article:

“Looking to move his family to the suburbs, [Mr. Sambrotto] said he carefully staged his apartment for sale himself, and put it on the market. But after using a mix of websites to publicize his apartment, he said he had only ‘middling success’ and switched to a broker because many buyers were so reliant on brokers.”

Bottom Line

There is a reason the real estate industry has been around for centuries: it performs a valuable service.

• An unparalleled selection of shoes of every size, color, and price range
• The shoes were discounted 30% or more
• You had a credit card that would finance the shoes for 30 years at 4.5%

How many shoes would you buy? My bet is there would be a line around the block. Well, today, real estate is like that shoe store (incredible selection, terrific bargains and excellent financing terms). But there’s more….

• Shoes go in and out of style. Homeownership is still the American Dream.
• Shoes are worth less once you wear them. Homes will appreciate in value over time.
• Shoes get disposed of. Homes are lasting.

And while many can recount memories created in certain shoes, everyone can remember their first home, their first family gathering, the countless holidays shared. There is also the ability to decorate to your tastes, the stability (and lower crime rate) in homeownership neighborhoods and the higher level of education achieved by kids who grow up there.

If you’d stand in line to buy shoes, what’s stopping you from exploring a home? Despite some media perceptions, there is mortgage money available with reasonable down payment requirements at extremely low rates…talk to a loan officer. There are some great deals out there with short sales, foreclosures and regular transactions also!

Happy Shopping!

Demand has indeed shown improvement in many parts of the country. However, the supply side of the formula is being impacted by legal issues. The number of foreclosures coming to market has been slowed dramatically by the courts as the banks still struggle with improperly filed paperwork. This inventory will eventually find its way to the market and again put downward pressure on values.

Here is a chart showing the challenge:

Bottom Line

If you are selling, there currently is a window of opportunity to get your best price before the distressed properties are released.

Year- to-date, 2011 still trails 2010 by 18.1% but this figure is also expected to diminish throughout the remainder of the year. It is already less than last month when the difference was 25.6% year-to-date – signaling momentum building in an accelerating market. The July median sales price for Dane County – representing the midpoint of all closed sales ranked from lowest to highest price – was 3.7% below last year while through the first seven months, the median sales price remains slightly ahead: $206,000 (2011) compared to $202,042 (2010).
Total active listings in Dane County continue the year-to-year downward trend – 4545 in 2011 vs. 4688 in 2010. New listings in July 2011 were 7.9% fewer than 2010, and for the year are down 14.3%. Even with the reductions, however, months supply of inventory remains at elevated levels.

In breaking down the Dane County numbers between single family homes and condominiums for the month of July, single family home sales are up 43.5% and condominiums sales are up 21.1%. Median sales price for single family homes trailed 2010 by 7.5% while condominium median sales price held virtually the same – $165,000 (2011) vs. $165,900 (2010). Total active listings for single family homes actually rose ever so slightly – 3046 vs. 3028 – while condominium total active listings fell 9.7%.

For the entire SCWMLS, July 2011 sales are 28% ahead of July 2010 and year-to-date trail by 14.6% (compared to 20.6% last month). New listings are down 11.9% for the month and 12.7% for the year. Total active listings are also down – 5.1% less than one year ago. Median prices are slightly down for the month and year-to-date – by 1.7% and by 3.%% respectively.

As was the case in June, sixty-one percent of all active single family home listings in the SCWMLS for July are priced between $100,000 and $300,000, with the largest segment in the $100,000 – $200,000 range (38.5%). From all sales of single family homes reported for the month, 39.2% were between $100,000 and $200,000 with 22.4% being between $200,000 and $300,000. For condominiums, 49.5% of the active listings are priced from $100,000 to $200,000 with 48.5% of condominium sales coming in this same price range.

It’s unclear what effect the recent events in Washington and Wall Street will have on the local housing market, if any, but in the near term it appears that the effects could be positive. Interest rates have fallen to unheard of lows. As mentioned last month, the housing market is offering a very unique opportunity for buyers – given the combination of extraordinary interest rates, ample selection of active listings in most price ranges, and steady prices. Ownership may never be more affordable, and as one recent study
from the University of Wisconsin of international real estate investors reveals, it may be the best deal in world.

“The impact on your wallet of the Standard & Poor’s downgrade of the nation’s credit rating is similar to what would happen if your own credit score declined: The cost of borrowing money is likely to go up,” the Washington Post explained in the aftermath of S&P’s decision.

S&P downgraded the U.S.’s top-notch AAA credit rating for the first time in history, moving it down one notch to AA+; the rating reflects a downgrade in S&P’s confidence in the U.S. government’s ability to repay its debts over time. It’s not clear, however, whether S&P’s downgrade will instantly effect rates, analysts say.

The 10-year Treasury note is considered the basis for all other interest rates. And “the downgrade could increase the yields on those bonds, forcing the government to spend more to borrow the same amount of money,” the Washington Post article notes. “Many consumer loans, such as mortgages, are linked to the yield on Treasurys and therefore would also rise.”

While consumers who have fixed interest rate mortgages will be immune to any changes in borrowing costs, home buyers shopping for a loan or those with mortgages that fluctuate may see a rise in rates later on, some analysts say.

Mark Vitner, senior economist at Wells Fargo Securities, told the Associated Press that he doesn’t expect the downgrade to drive up interest rates instantly since the economy is still weak and borrowers aren’t competing for money and driving rates higher. However, he expects in three to five years, loan demand will be much higher and then the downgraded credit rating might cause rates to rise.

Analysts are still waiting to see if the other rating agencies, Moody’s and Fitch, follows S&P’s lead in its downgrade of the U.S. credit rating. If so, the aftermath could be much worse, analysts say.

The debt deal reached by Congress last week was expected to save the U.S. from any credit rating downgrade. However, S&P said lawmakers fell short in its deal. Congress’ deal called for $2 trillion in U.S. deficit reduction over the next 10 years; S&P had called for $4 trillion.

Source: “5 Ways the Downgrade in the U.S. Credit Rating Affects You,” The Washington Post (Aug. 8, 2011); “Questions and Answers on Standard & Poor’s Downgrading of U.S. Federal Debt,” Associated Press (Aug. 6, 2011); and “S&P Downgrade Will Shake Consumer and Business Confidence at a Fragile Time, Economists Say,” Associated Press (Aug. 6, 2011)

The odd thing about all these questions is that survey after survey keeps telling us that price is not the reason families actually buy a home. When money is considered at all, it is in light of not paying rent to a landlord. Let’s look at two recent surveys as examples:

National Housing Survey

The top five reasons given in the survey for buying a home, in order, are:

• It means having a good place to raise children and provide them with a good education
• You have a physical structure where you and your family feel safe
• It allows you to have more space for your family
• It gives you control of what you do with your living space (renovations and updates)
• Paying rent is not a good investment

The Myers Research and Strategic Services Survey

The top five reasons given in the survey for buying a home, in order, are:

• Home ownership provides a stable and safe environment for children and other family members
• Home ownership means the money you spend on housing goes towards building equity, rather than to a landlord
• Home ownership creates the opportunity to pay off a mortgage and own your home by the time you retire
• Home ownership creates the opportunity to live in a neighborhood that you enjoy
• Home ownership allows you the right to decorate, modify and renovate your home as you see fit

Bottom Line

Price dominates conversation when we talk about buying a home. However, when it comes down to it, we actually buy for the same reasons our parents and grandparents did – we want a better lifestyle for ourselves and our families.

In fact, buyers don’t save money by closing at the end of the month, says Peter Thompson, a senior loan officer at Prospect Mortgage in Naperville, Ill. Rather, a month-end close means buyers pay less prepaid interest, but skip only one subsequent monthly payment. Meanwhile, buyers who close at the start of the month pay more prepaid interest, but then skip two monthly payments. Either way, there are no interest-free days; so in effect, the difference is more about cash flow than savings

Closing earlier in the month also helps to avoid what Thompson describes as the month-end “traffic jam” that’s typical at most mortgage, title and closing company offices.

“The mortgage company has to fund the loan,” he says, “and if they have a bunch of files they’re working on, they may not get back to that one file to get it done as quickly as they would if it’s one of only a few they’re working on at that time.”

Month-End Can Mean Delays

That month-end traffic jam also means a greater likelihood of delays, which can push the closing to the beginning of the next month, when buyers will have to come up with that extra cash for the additional prepaid interest, says Randi Bennett, an escrow officer at First Centennial Title Co., in Reno, Nev.

“When buyers try to close at the end of the month, it does save their pocket dollars because they have to come up with a little bit less of the interest and pro rata (expenses), but when we get to the end of the month, it’s crunch time,” she says.

The crunch is worsened by lender timetables that dictate month-end closings for sales of foreclosures and short sales, Bennett says. A short sale requires the lender’s approval because the sale price is less than the seller’s loan balance.Buyers who want to buy a short sale home need patience, because it’s impossible to predict the time of the lender’s approval with any accuracy. Short sale approvals are so unpredictable, in fact, that Bennett says contracts sometimes call for closing “45 days from short sale approval” or similar terms. A small proportion of such contracts don’t even specify a closing date.

A delay in approval of the buyer’s financing can hold up closing as well, says Phyllis Yanagihara, a certified senior escrow officer at Master Escrow in Glendale, Calif. In a perfect world, she says, buyers’ loan documents would show up well before the scheduled closing date. In reality, these documents more often arrive late in the afternoon the day before the closing. Then, Yanagihara says, “it’s all-hands-on-deck, let’s try to get it done.”

A holiday, particularly if it lands on an end-of-the-month Friday, adds to the time crunch and can trigger an extra two or three days’ delay, Yanagihara says.

Buyers and sellers should avoid scheduling out-of-town trips or vacations during a transaction or soon after the target closing date. Bennett says this sort of bad timing is “shockingly common” and can result in all kinds of hassles and added costs.

Sellers May Have a Say

Even in a buyer’s market, buyers don’t control everything in the transaction. In fact, Yanagihara says, sellers might have their own reasons to close at a specific time of the month. Sellers who are buying another home might want to schedule simultaneous closings. Sellers also might want to close before the next property tax installment or homeowners insurance premium is due because if the closing agent can’t verify that payment, then its full amount, plus any late charges, will be held back from their proceeds from the sale.

Closing early in the month can complicate the seller’s final mortgage payment, especially if it’s on autopilot, but can also save interest expense on an existing mortgage, unless, says Thompson, the mortgage is insured by the Federal Housing Administration. In that case, the seller usually must pay an entire last month of interest, regardless of when the sale closes.

If the FHA loan amount is relatively small, say, $100,000, the extra interest might not be that significant, Bennett says. However, a larger loan amount combined with an early-in-the-month closing could cost the seller several hundred dollars. The only way to avoid that is to close on the last day of the month.

Processing problems at the major mortgage servicers pushed up to 1 million foreclosure actions that should have taken place in 2011 into 2012 and beyond, according to RealtyTrac.

Lenders issued a foreclosure filing on more than 1.1 million properties in the first half 2011, down 29% from the same period one year ago. More than 608,000 properties received a filing in the second quarter, down 32% from the same period last year. And foreclosures in June were down 29% from one year ago, the ninth straight month of yearly declines.

“It would be nice to report that foreclosure activity is dropping as a result of improvements in the economy or the housing market,” said RealtyTrac CEO James Saccacio. “Unfortunately, with unemployment rates inching back up, consumer confidence weak and home sales and prices continuing to languish, this doesn’t appear to be the case.”

Major servicers froze the foreclosure process late last year and are still in the middle of correcting mishandled documents. The servicers became the focal point of investigations from the 50 state attorneys general and have been forced into compliance with consent orders from regulators.

Month-to-month, the process seems to be showing signs of life. In May, foreclosure activity spiked across certain states. And in June, foreclosure filings across the country increased 4% from the month before.

But viewed on a quarterly or larger scale, the process continues to drag. The properties that completed the foreclosure process in the second quarter spent 318 days in the system on average, up from a revised 298 days in the first quarter and 277 days in the second quarter of 2010.

REO properties that sold in the second quarter spent 178 days on the market from the time they were foreclosed, an uptick from 176 days in the first quarter and 164 days one year ago. In New York, REO properties took an average of 309 days to sell.

“Processing and procedural delays are pushing foreclosures further and further out,” Saccaccio said. “This casts an ominous shadow over the housing market, where recovery is unlikely to happen until the current and forthcoming inventory of distressed properties can be whittled down to a manageable number.”

http://www.housingwire.com/2011/07/13/one-million-foreclosures-delayed-to-2012-or-later-realtytrac