41% of Americans Would Prefer to Build Their Home

5.12 VisualA recent study by Harris Poll revealed that, for the same price, forty one percent of Americans would prefer to buy a newly built home instead of an existing home. Twenty one percent prefer an existing home while thirty eight percent didn’t have a preference.

However, those desiring a new home may not be prepared to ante-up the difference in price. Only forty six percent of those who strongly prefer a new home are willing to pay at least 20 percent extra* to purchase a new home versus a comparable existing home.

*Trulia estimates “that new homes built in 2013 or 2014 are typically priced 20 percent higher than older homes of a similar size and location.”

Why People Prefer a New Home?

Reasons to Buy a New Home1

Existing Home Preferences1

A Great Reason to Sell Now

5.8 BlogThe price of any item (including residential real estate) is determined by ‘supply and demand’. If many people are looking to buy an item and the supply of that item is limited, the price of that item increases.

According to the National Association of Realtors (NAR), the supply of homes for sale is still below the normal 6 month level of inventory. That means less competition.

However, a recent study revealed that 71% of current homeowners are considering selling their home this year. Putting your home on the market now instead of waiting for this increased competition to come to the market might make a lot of sense.

Buyers currently in the market are motivated purchasers. They want to buy now. With limited inventory available in most markets, a seller will be in a great position to negotiate their best possible price.

Difference Between a ‘White Lie’ and Lying

1.22 VisualGrowing up it seemed ‘white lies’ were okay while lying was a sin. As children, we sometimes had difficulty understanding where the line was. As we matured, we realized there most definitely was a difference.

If a husband or wife asks if it is okay to invite their parents over for dinner, the spouse would probably say ‘sure’ even if it wasn’t 100% the truth. That was a ‘white lie’. If a young boy dresses up as a monster on Halloween and asks his father if he looks ‘really scary’, it was okay for his dad to say ‘YES’! That was a ‘white lie’.

In both cases, the person telling the ‘white lie’ was saying what the other person wanted to hear. In both cases, there was no harm in not telling the 100% truth. In both cases, it was a ‘white lie’. However, if we are not telling the 100% truth in order to save someone’s feelings AND IT HURTS THEM, we are lying.

What does this have to do with real estate?

We believe there are some in the real estate industry more worried about a homeowner’s feelings than they are about telling the truth about the current value of their home. These agents are not necessarily malicious. They just realize they may disappoint a seller at a listing appointment by telling the truth about what the house will sell for. They find it difficult to deliver tough news. To make sellers feel better, they lie.

Good agents can deliver good news. Great agents know how to deliver tough news.

In today’s real estate market, you need an agent that will tell you the truth, even when you don’t want to hear it. You need an agent more worried about your family than they are about your feelings. You need an agent who can get the house sold!

What this means to you

If you are interviewing potential listing agents, demand they tell you the truth. Don’t hire the agent that tells you what you want to hear. Hire the agent that tells you what you need to know. Reward their honesty.

Homeownership: This Time the Wall Street Journal Got it Wrong

Today's post is written by Steve Harney of Keeping Current Matters.smug

I have been a subscriber to the Wall Street Journal (WSJ) for as long as I can remember. In my opinion, it is the single greatest source of financial information and insights available. I don’t always agree with their analysis but I always respect their position.

However, in an article this past weekend, The New Math of Renting vs. Buying, they flat out got it wrong. Below are a few excerpts from the article and the reason why I believe the analysis to be incorrect.

The Cost of Renting is Lower than the Cost of Owning

In the article, they discuss that homeownership is more expensive than renting in many large metropolitan areas.

"The monthly cost of renting was lower than buying in 20 large metropolitan areas at the end of last year, the most recent period for which data are available, according to figures provided exclusively to The Wall Street Journal by Deutsche Bank. That is up from 15 large metropolitan areas a year earlier.”

The challenge is that more recent data from two very reliable sources has shown that not to be the case. Among the 35 largest metro areas analyzed by Zillow in the first quarter, every metro showed it would be cheaper to buy than rent if you plan to live in the home for at least 4.2 years.

According to a study by Trulia:

“Homeownership remains cheaper than renting nationally and in all of the 100 largest metro areas. Rising mortgage rates and home prices have narrowed the gap over the past year, though rates have recently dropped and price gains are slowing. Now, at a 30-year fixed rate of 4.5%, buying is 38% cheaper than renting nationally.” (emphasis added)

Renters Don’t Have All the Expenses of Homeowners

The article goes on to explain that as a renter you have many less expenses than you would have as a homeowner:

"Renters, for example, don't pay property taxes, homeowner's insurance and, in most cases, maintenance costs. These expenses can cost homeowners about 3% of the price of their home annually, experts say.

While those costs can be folded into monthly rent, apartment renters often pay a smaller share as landlords spread the costs among many tenants, says Stijn Van Nieuwerburgh, director of the Center for Real Estate Finance Research at New York University. If a window breaks or the toilet plugs up, your landlord—not you—pays for the repairs."

Don’t kid yourself – the landlord does not pay the taxes nor pay for repairs. The tenant does. It is incorporated in the rent. It is true, if it is an apartment building, that the property taxes are shared by all tenants. However, realize that the amount of property taxes for an apartment building with “many tenants” will be far greater than a single family residence.

We think this situation is best explained by Eric Belsky, Managing Director of the Joint Center of Housing Studies at Harvard University, in his paper on homeownership - The Dream Lives On: the Future of Homeownership in America:

“Households must consume housing whether they own or rent. Not even accounting for more favorable tax treatment of owning, homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord plus a rate of return. That’s yet another reason owning often does—as Americans intuit—end up making more financial sense than renting.” (emphasis is mine)

Investing the Difference in Payments Will Net a Renter More Money

The WSJ article claims that, if a renter invests the difference between their rent payment and a potential mortgage payment had they purchased, they would be better off financially in the long run.

"Renters don't end up with a valuable asset, as buyers do when they pay off a mortgage. But renters might be able to make more money by investing the monthly savings, as well as the cash they would otherwise use for a down payment, he says."

They go on to explain their reasoning as follows:

"The value of the average single-family home increased by 3.6% a year in the three decades through 2013, compounded annually, according to mortgage giant Freddie Mac. By contrast, the compound annual return on the S&P 500 over that period was 11.1%, according to Chicago-based investment-research firm Morningstar."

As to the idea that the return on investment would be greater by investing in the stock market rather than purchase a home, I think the article in the WSJ forgot that housing is a leveraged investment. Belsky, in his paper, explains:

“Few households are interested in borrowing money to buy stocks and bonds and few lenders are willing to lend them the money. As a result, homeownership allows households to amplify any appreciation on the value of their homes by a leverage factor. Even a hefty 20 percent down payment results in a leverage factor of five so that every percentage point rise in the value of the home is a 5 percent return on their equity. With many buyers putting 10 percent or less down, their leverage factor is 10 or more.”

That 3.6% average annual appreciation is really an 18% return on cash to a home buyer putting down 20%.

They also assume the renter will save any difference in housing expense. However, that does not happen in reality. In their ongoing research for their paper, Beer and Cookies Impact on Homeowners’ Wealth Accumulation, Eli Beracha and Ken H. Johnson reveal that homeownership creates a ‘forced savings’ plan:

“It appears that homeownership creates extra wealth mainly through its ability to force owners to save rather than through property appreciation. Thus, homeownership appears to be a self-imposed savings plan, which through time leads to greater wealth accumulation as compared to comparable renters. In short, buying a home makes Americans save.”

And Belsky from Harvard agrees:

“Since many people have trouble saving and have to make a housing payment one way or the other, owning a home can overcome people’s tendency to defer savings to another day.”

To further make this point, we can look at a study by the Federal Reserve which showed that the net worth of a homeowner ($174,500) is 30 times greater than that of renter ($5,100).

Bottom Line

Looking at financial advantages of homeownership from every angle still reveals that it is a much better investment than renting.

3 Reasons to Sell Your Home this Spring

4.8 VisualMany sellers are still hesitant about putting their house up for sale. Where are prices headed? Where are interest rates headed? These are all valid questions. However, there are several reasons to sell your home sooner rather than later. Here are three of those reasons.

1. Demand is about to skyrocket

Most people realize that the housing market is hottest from April through June. The most serious buyers are well aware of this and, for that reason, come out in early spring in order to beat the heavy competition. We also have a pent-up demand as many buyers pushed off their home search this winter because of extreme weather. Sellers in markets where seasonal weather is never an issue must realize that buyers relocating to their region will increase dramatically this spring as these purchasers finally decide to escape the freezing temperatures of the winters in the north.

These buyers are ready, willing and able to buy…and are in the market right now!

2. There Is Less Competition - For Now

Housing supply always grows from the spring through the early summer. Also, there has been a growing desire for many homeowners to move as they were unable to sell over the last few years because of a negative equity situation. Homeowners have seen a return to positive equity as prices increased over the last eighteen months. Many of these homes will be coming to the market in the near future.

The choices buyers have will continue to increase over the next few months. Don’t wait until all the other potential sellers in your market put their homes up for sale.

3. There Will Never Be a Better Time to Move-Up

If you are moving up to a larger, more expensive home, consider doing it now. Prices are projected to appreciate by approximately 4% this year and 8% by the end of 2015. If you are moving to a higher priced home, it will wind-up costing you more in raw dollars (both in down payment and mortgage payment) if you wait. You can also lock-in your 30 year housing expense with an interest rate at about 4.5% right now. Freddie Mac projects rates to be 5.1% by this time next year and 5.7% by the fourth quarter of 2015.

Moving up to a new home will be less expensive this spring than later this year or next year.

Rethinking the 55+ Market

We are excited to have Nikki Buckelew back as our guest blogger for today. Nikki is considered a leading authority on seniors real estate and housing.

Mature Couple at ParkSomeone said to me recently, “Sixty-five is the new forty-five.” We chuckled, but the more I thought about it, the more I found myself in full agreement.

With more and more people working beyond traditional retirement age and the advances in modern medicine, the lines between middle and late adulthood are becoming a bit blurred.

What makes this relevant in the world of real estate?

As our population ages, we will see more and more organizations dedicating their marketing efforts toward the “senior” demographic. You have read previous KCM blogs about the various designations agents can earn for this specific purpose, and undoubtedly you have already seen real estate professionals in your market professing to “specialize”.

Reality check — not all seniors are the same.

Just as with using any label, we run the risk of putting people into a category when they may or may not actually belong there. This is especially true of the senior segment.

Despite the label of “senior,” there are 3 distinct types of moves you may encounter as a real estate professional — all three involve seniors, but they aren’t based necessarily on age. You see, age is not a good predictor of relocation. Instead, people generally make changes in residence based on life circumstances.

Listed below are the three primary types of moves made by those labeled as seniors:

Move #1: Amenity-based

These individuals and/or couples are seeking a certain type of lifestyle and their home is only one component of a much larger picture. When looking to sell, they are usually transferring their equity from one home to the next and can usually either pay cash or put a significant down payment towards their purchase. Depending upon employment status, they may be moving across the country for more appealing climates or seeking a place near an airport making it easier to commute. Some are moving closer to kids and grandkids, while others are moving to destination locations where the family can enjoy visiting.

Social engagement, including quality family and friend connectedness, are key decision-making elements.

Move #2: Anticipatory / Planning

As people age, they may begin to experience changes in personal health status or become the caregiver of a spouse requiring additional care. When this occurs, people may find their current home unmanageable or no longer suited for their current situation. Moving means simplifying and making preparations for future care needs and support. With this type of move, seniors are typically looking to either buy or lease a property with minimal maintenance, accessibility features, and in close proximity to quality healthcare. Family members and adult children may be called upon at this stage to assist, and will often have some influence in the relocation process.

Access to formal and informal support, as well as low maintenance and accessibility features, are primary decision-making factors.

Move #3: Needs-based

While most people intend to live independently until they die, unfortunately, this reality isn’t always possible. As health declines to the point where more support is needed than can be provided for within the person’s home and community, relocation is necessary. This move may involve selling the personal residence and relocating to a senior living community or into the home of a family member. In many cases, needs-based moves involve caregivers and/or family members as additional decision makers. Late-life moves involving frail elderly or those experiencing illnesses or disease processes can be highly emotionally charged and necessitate a level of empathy in addition to real estate competency.

Timing, health status, and caregiver support are keys to decision-making.

As you can see from these various different types of moves, not all seniors share the same housing needs and goals. And while specializing in the 55+ housing market appeals to many, there are actually many sub-niche opportunities within the senior segment worth exploring.

Regardless of whether you choose to make working with mature home buyers and sellers a part of your overall business plan, with at least 1 in 4 home sellers over the age of 65, there is little doubt you will work with older adults in the course of your general real estate practice. When encountering these opportunities, it will serve you well to consider the three types of moves listed here and evaluate your value proposition accordingly, so that you can be the very best agent possible for your mature clients.