What Will Real Estate Buying Look Like for the Rest of 2022?

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2021 was a rough year for many home buyers who had to contend with skyrocketing home prices, lightning-fast sales, and rampant bidding wars just to get the keys to a home.

Without putting in a strong offer fast and well over asking, you would likely lose out on a home you wanted.

Once they completed the steps of buying a home, many learned the true cost of homeownership was higher than they realized. 

Still, buying a home in 2021 was a pretty great investment because of rising home values, no matter where you purchased it. So what does the 2022 real estate market forecast look like? We’ll examine predictions for this year’s market and what it could mean for buyers.

Buying a Home 2022

New Housing Supply Will Hit the Market

A housing shortage is driving the increase in home prices. Construction of new homes slowed during the pandemic because of worker shortages and supply chain problems. Additionally, many municipalities still resist high-density zoning that could create more dwellings.

The entire housing shortage won’t disappear in just one year, but a bunch of new housing is expected to hit the market in 2022. As supply chain issues ease and demand for housing remain strong, the construction of single-family homes is expected to explode. Many of those units will hit the market this year. 

Still, new housing won’t be enough to meet demand. According to Fannie Mae, there will be a 50% shortage in homes. That will keep prices high, but new supply should slow relentless upward pressure on prices.

Demographics Will Continue to Squeeze the Market

Twin demographic pressures will keep the housing market tight. For one, more than 40 million millennials are reaching the age to buy their first home.

Once they save enough for a down payment, they’re going to be looking to buy. That will keep overall demand high. 

Millennials prefer two-story homes with outdoor space, green features, and open floor plans.

They’re also interested in suburban living because many of them are starting families. This type of starter home is already among the most coveted pieces of property, so bidding wars may continue as millennials duke it out for their dream starter homes.

That’s not the only demographic pressure on the housing market. Boomer homeowners are at an age when many should be downsizing, but the lack of inventory has made it so tough that many are choosing to stay put — keeping their homes off the market.

Rising Rates Will Reduce Demand

Mortgage interest rates hit record lows in 2021, but they will likely climb throughout 2022 as the Federal Reserve raises rates to combat inflation. Mortgage rates haven’t shot up yet, and in the short term, looming increases may push buyers to purchase homes now while rates are still low.

As rates climb, demand will likely decrease as many buyers may no longer be able to afford a home. Buyers may migrate to new online brokerages offering home buyer rebates and other incentives. 

Due to rising rates, income will need to be higher to get the same home you could have purchased last year.

Climate Change May Affect Some Markets

Home buyers may start to consider climate change when they purchase a property. Rising temperatures and the subsequent bump in utility costs could change markets in the South and the Sun Belt. Other high-priced markets — such as Colorado and California, which have experienced an uptick in wildfires over the past few years — may start to feel the consequences.

Homeowners in flood-prone areas will also have to grapple with increased repair and insurance costs.

Millennials, who make up the largest cohort of home buyers, are also the most environmentally conscious generation, making it even more likely that climate change will lead to market change.

Prices Will Likely Continue to Increase

Although many experts once predicted a slowdown in home appreciation in 2022, most have revised their estimates upward.

Zillow, for example, is predicting an 11% rise in home values after earlier predicting single-digit growth. Goldman Sachs and Fannie Mae also anticipate double-digit appreciation.

Not everyone is so optimistic, though. The National Association of Realtors expects less than 6% appreciation through 2022, while Realtor.com predicts an even smaller rise of 2.9%.

Many market watchers fear we’re in a bubble, but other experts theorize that the Great Recession tanked prices so dramatically that, on a longer timescale, home values are approaching the price they’d be if they’d risen steadily over the past 20 years. 

In the end, 2022 may be a little easier for buyers than 2021— but not by much. High-interest rates may bump some buyers out of the market, but low inventory, looming rate increases, and demographic pressures will likely keep competition very high. 

Final Thoughts

At some point, the real estate market will change. The pendulum always swings the other way eventually. When that exact moment occurs is hard to tell. It’s essential to remember that all real estate is local.

One area of the country might change quickly while others lag behind.

Hidden Costs You Need to Consider Before Buying a New Home

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Costs Not to Forget When Buying a House

The residential real estate market is booming. Although real estate is a traditionally attractive investment because of the potential for high returns, and owning property is considered a fundamental part of living the “American Dream,” historically low-interest rates and a wave of first-time millennial homebuyers have led to fierce competition.

Bidding wars on houses are happening all over the country right now and have been for a while.

However, you shouldn’t buy a house just because everyone else is doing so. After understanding the true costs involved, you may not want to become a homeowner. 

The cost of homeownership has skyrocketed because of high demand, limited inventory, inflation, and supply chain issues. Market forecasts predict that the housing market will continue to grow in 2022, albeit at a slower pace. 

A home costs more than $15,000 a year in non-mortgage expenses on average, and a majority (52%) of homeowners say annual expenses took them by surprise, according to Clever Real Estate’s True Cost of Homeownership survey. Additionally, 3 in 5 say they’ve experienced buyer’s remorse.

From maintenance and emergency repairs to property taxes, there are several hidden and surprise costs that prospective buyers should consider before closing.

Hidden Costs Buying House

Maintenance and Upkeep

One of the benefits of renting is that your landlord typically takes care of the property’s maintenance and upkeep.

However, as a homeowner, recurring expenses such as landscaping, gutter cleaning, pest control, and pool care all fall on you – and it can get pricey.

One-third of homeowners in the True Cost of Homeownership survey say they spent $5,000 on maintenance in 2021, not including emergency repairs.

These responsibilities are also time-consuming, with homeowners indicating that they spent nearly 20 hours a month on painting and fixing plumbing, electrical, and roofing problems, as well as appliances.

Repairs and Renovations

In a competitive housing market, a growing number of first-time buyers would purchase a fixer-upper to get a better deal. More than 4 out of 5 millennials say they’d buy a house in need of major repairs, but 1 in 4 who do so regret it, according to Real Estate Witch’s 2022 Millennial Home Buyer Report

Structural problems, a leaky roof, termites, and mold are just a few hidden flaws that buyers may not notice during a walk-through. That’s why a home inspection is important to include in your purchase agreement, but many buyers are foregoing that contingency to make their offer more attractive. 

However, more than 40% of homeowners say they would have negotiated a better price or more contingencies if they had realized the actual cost of homeownership, according to the True Cost of Homeownership survey. 

If you’re buying a fixer-upper, having a good real estate agent is imperative. A Realtor’s responsibilities are many, and negotiating on your behalf is a big part of the job. If a home inspection reveals damage you’re not aware of, an agent can ask the seller to pay for repairs before closing or offer you money so you can fix it yourself.

If a house will take thousands of dollars to repair, it may be wise to keep looking or build a home from scratch. There are ways to build a house cheaply, and with all new systems and appliances, you shouldn’t need to make major repairs for quite some time, potentially saving you money in the long run.

Utilities, Insurance, and Taxes

Utilities, homeowners insurance, and property taxes aren’t necessarily surprising expenses, but the actual cost can be shocking. Homeowners’ insurance costs an average of $1,680 each year. Moreover, homeowners spend about $2,000 more on utilities each year than renters because larger living spaces require more energy to heat and cool.

Property taxes vary by state and are heavily influenced by a home’s value. The most expensive property taxes are in New Jersey, where they cost approximately $8,400 annually. Alabama, on the other hand, has the lowest property taxes at around $600 per year.

Mortgage Costs

Most homeowners have a mortgage, but the monthly amount can take some by surprise. About 1 in 4 millennial homeowners say they regret that their mortgage is too expensive, according to the Millennial Home Buyer Report. 

Buyers are typically advised to make a 20% down payment, but with rising home prices, that’s become more difficult. It isn’t mandatory to put down 20%, but if you put down less, you’ll also need to pay private mortgage insurance (PMI), which is meant to protect the lender and alleviate some of the risk if you stop making payments on your loan. 

Pro tip: Getting a side hustle can help you earn extra money to put toward a down payment if you want to avoid PMI.

It’s normal for first-time home buyers to ask questions before submitting an offer or signing a loan. Choose a Realtor and a lender who can explain all of the potential expenses in your monthly mortgage payment.

Buying property is a great investment, but sometimes owning a house — especially the wrong house — is more trouble than it’s worth.

Homeownership is a big financial decision, and it requires proper planning and budgeting. To make a purchase you won’t regret, make sure you have enough money set aside for regular expenses, as well as unexpected costs. 

What Things Should You Buy for Your New House – Ultimate List

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Most first-time home buyers are a bit overwhelmed with the amount of stuff that is needed for their new house.

While it may seem absurd, since they have been living for a while and have accumulated a lot of stuff, there are still quite a few items that new homeowners overlook.

The following collection points out the necessities that will be needed for a home to be functional and make the owner feel prepared for the majority of situations that arise.

Things to buy for a new house

Cleaning Supply

Some of these will be items that you may have on hand if you have been living on your own for a while.

But if you are moving to your first-ever spot away from home, you will need to have several things available for day-to-day cleanliness. You should have separate moving boxes for these items.

  • Broom and dustpan
  • Mop
  • Mop bucket
  • General floor cleaner
  • Paper towels
  • Sponges or scrubbing pads
  • Rubber gloves if you have sensitive skin
  • All-purpose cleaner for hard surfaces (sinks, toilets, countertops, etc.)
  • Window cleaner for windows, mirrors, and light fixtures
  • Scrubbing brush for toilets
  • Duster with a long handle to reach higher corners and ceiling fans
  • Vacuum (if the new home has carpet)
  • Carpet odorizes (again if the home has carpet)
  • Garbage bags
  • Dishwashing liquid

This should be enough to keep the house clean and ready for your first group of visitors. If you like to have a nice aroma in the home, you should also consider scented candles or odor eliminators that plug in the wall.

Flashlight

Owning a home means you might have to crawl under the home or climb up in the attic, or both, to check on some kind of issue or investigate a weird noise. And there is always the chance that a power outage will leave you in the dark.

Most local stores will have inexpensive flashlights. Pro tip: get some small, circular stickers and place them on the bottom of the flashlight with the date that you bought the batteries. Make a note, on your calendar, to check the batteries every 6 months.

Smoke Detector

Along with keeping a home clean, you also want to protect yourself and your loved ones in the event of a fire or carbon monoxide leak.

Make sure to have a smoke detector in the kitchen as well as in each bedroom.

It is wise to spend the money on devices that can alert you to both smoke and carbon monoxide, to save space and money on batteries.

Along with the note on your calendar for the flashlights, also check the batteries in the smoke detector at the same time.

Lightbulbs

One thing that most people underestimate with a new home is the sheer number of light bulbs that will be needed.

Consider for a moment that the kitchen will likely have multiple lights, and each bathroom will likely have at least one fixture with multiple bulbs. Add to that the number of bedrooms, the living room, the dining room, and don’t forget the garage and rear deck.

In just a few rooms, you may need a total of 12 or more light bulbs. And they may not be the same size or wattage, so you need to check the current bulbs to get the right design and the correct wattage.

Curtains and Window Coverings

Most people like to have a bit of privacy in their home, regardless of what they are doing.

For this reason, it is a good idea to have some type of curtains and possibly some blinds or shades.

These items will depend on the overall color scheme of your furniture and decorations as well as your personal preference.

Small Kitchen Items

There are a few items that will be necessary for the kitchen to keep things safe, tidy, and functional

First, get a reliable can opener. Whether you choose the old-fashioned manual kind or an electric version, being without a can opener when you need one can be extremely frustrating.

If you have the extra money, consider buying one of the under-cabinet varieties. This puts the appliance in one spot and you always have access to it, plus it clears up countertop space.

The next item that a kitchen will need is some type of garbage can along with the liners. Between cooking and eating, the kitchen is the main room in a home that has the biggest need for a garbage can. Choose one that complements the appliances and still maximizes space at the same time.

Finally, you really should consider a small fire extinguisher to keep in the kitchen. Even if you don’t have a gas stove, there are lots of ways that a fire can start in a home. Grease fires are quite common, especially for people that are new to homeownership. These fires can spread quickly and do a lot of damage in a short amount of time.

Door Locks

You just bought your first home and the real estate agent hands you the key! What an exciting moment in your life! However, throw away the key and replace the locks on all the exterior doors.

There is no way to know how many people had a key to your existing home. From previous owners to relatives to ex-girlfriends and ex-boyfriends, there could be a lot of keys floating out there.

It is best to start on a new page with fresh locks and new keys. This puts you in control of who can enter your home and who is locked out. And it will provide a small piece of security knowing that you have your home under lock and key.

Securing the Home

Along with the new locks mentioned above, it is a smart idea to install some sort of security system to scare off intruders.

It can be as inexpensive and simple as alarms on the windows along with one of the modern smart doorbells or it can be as lavish and expensive as one of the wireless monitoring systems with multiple videos and a monthly service that alerts the authorities.

Whichever route you go, pay special attention to the windows that face the road along with all the exterior doors. These represent the most vulnerable and often targeted spots on homes.

Small Toolbox with Tools

When you move into a home, you find yourself doing a lot of manual labor tasks. Hanging pictures or mirrors, repairing a damaged light fixture, attempting to stop a leak in a bathroom and a lot of other items require some basic tools.

Now is a time to invest in a toolbox. Get a simple, sturdy box and add the following items

  • Hammer
  • Pliers
  • Adjustable wrench
  • Various sizes of screws and nails
  • Tape measure
  • Small carpenter’s level
  • Flathead screwdriver
  • Phillips head screwdriver
  • Nut driver with adjustable head
  • Utility knife

This basic kit should be enough to handle most of the simple household chores and home maintenance you will encounter when you move to a new place.

Locking Storage Box

While some families might need a large safe to store family jewels and other important items, most people can simply get a locking storage box.

After buying a home, you will have a deed, some mortgage papers, and home insurance documents that need to be kept in a safe space. You will likely also want to draw up a will in case something happens to you or your significant other.

A locking storage box is a perfect place to store these documents.

These boxes are much cheaper than a safe and easier to transport, and much easier to store in a closet or under a bed.

The box should be fireproof and give you enough room to store the above items comfortably.

Shower Curtains

A shower curtain does a couple of things to help you out.

First, it gives you some privacy while you are getting cleaned up.

Secondly, it keeps the water in the tub and protects the bathroom floor from a flood.

Plan to get a crisp, new curtain for each bathroom. Since you have no idea how long the old one has been in the home, it is a good idea to throw out all the old ones along with their germs.

If you have a decorative streak in you, you may choose to hang double shower curtains. One curtain is designed to keep out the water and hangs on the inside of the tub. The other curtain, which faces out into the bathroom, can be a solid color, a pattern, or just about anything you can dream of to match the bathroom décor.

Supply of Batteries

It seems that a home is always in need of at least one or two batteries. The smoke detectors and carbon monoxide detectors that were mentioned earlier will run on batteries. So will the flashlights that we discussed previously.

If you have a TV, there will likely be a remote that needs a battery or two.

Some thermostats run on batteries, instead of electrical power from the home.

Needless to say, you will need a few backup batteries in various sizes after you move into your new home.

Clothes Hanger

You most likely have lots of clothes on hangers now. But you will be surprised how often you find yourself looking for a hanger.

Super cheap plastic ones can be purchased in bulk at several stores and online.

If you have a nice suit or evening gown, you may want to get at least one wooden hanger. Wooden hangers help clothes keep their original shape, and they last much longer than the cheap hangers.

Plunger

This tool is only used in case of a very nasty bathroom situation, but it is very handy and extremely useful.

Most hardware stores and general department stores will have these in the bathroom section, typically for a low price.

There is a difference between a plunger intended for the bathroom toiled compared to a plunger intended for a kitchen sink. Compare the two and make sure to get the right one. You don’t want to mix them up if you have two in your home.

Laundry Items

You want to make sure you have a place for dirty clothes before they head to the wash. And you may want to have a separate item to move the clothes.

Most people like to have at least one large basket or container that is used for dirty clothes. Some people also like to have a basket for moving clean items from the dryer to their destination for folding.

If you have several people living in your home, you may want to have multiple dirty laundry containers, and designate them for outer clothes, undergarments, towels, and bed linen. This makes separation a breeze and easier to process multiple loads of laundry.

You will also need some laundry detergent and stain remover for those unexpected accidents. If you like some clean fragrance to your clothes, you may also like to get some add-in items to combine with the detergent to help with the aroma of the clothes.

Finally, you want to have some static guard sheets for the dryer. This prevents the build-up of static electricity on the clothes.

Front Door

Some people like to have a simple mat at the front door that reads Welcome. Others like to have something that speaks to their hobbies or interests, such as their pets, their enthusiasm for race cars, or their love of planting.

Some people like to have an entire theme at the front door. A small chair, with a few plants, and a sign above the chair with a whimsical expression are pretty common fare.

Whatever you choose, keep in mind that it will be seen by anyone that comes to your doorstep. This includes your old college buddies, your siblings, your parents, and your neighbors.

Final Thoughts On Things To Buy For Your New House

This list should get your home stocked with necessary items that you will use for as long as you own a house. Having these things on hand will help you take care of most tasks and make the whole process of homeownership much easier.

If you found this article helpful, please consider sharing it with your social networks. Also, be sure to check me out on diigo!

First Time Home Buying Priorities: 3 Vital Things to Know

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What to Know About Your First House Purchase

Buying your first home: It’s an exciting time, and a major milestone to be celebrated. But the road to homeownership can also feel overwhelming — saving for a down payment, getting approved for a mortgage, finding the right home in the right location, and everything in between. 

A successful experience for first-time buyers — one that ends with you holding the keys to your new home — starts with careful planning and smart strategies. Read on to learn more about priorities for first-time home buyers. 

There are many questions to be answered before you’ll be fully prepared.

Sometimes knowing what not to do is just as vital as following sound buying tips.

Priorities of First Time Home Buyers

1. Prepare for Your Home Buying Journey 

Before you start attending open houses, spend some time assessing your finances and getting organized. 

  • Start saving: Not only for a downpayment but also for closing costs and moving expenses. Some first-time home buyers can qualify for conventional mortgages with as little as a 3% down payment, but remember that a 20% down payment will help you avoid the added expense of Private Mortgage Insurance (PMI). Use a down payment calculator to set a savings goal, so you can start putting money aside. 
  • Know your credit score: If you’re not sure what your current credit score is, now is the time to find out. You can get a free credit report from any of the three leading credit reporting bureaus: Experian, TransUnion, or Equifax. Ideally, you should review your credit report at least once a year to ensure your report is accurate and up to date. 

Maintain your good credit score by continuing to pay bills on time. And hold off on opening new lines of credit, applying for loans, or making other major purchases at this time.

Potential lenders want to see consistent financial behavior, so avoid risking final mortgage approval by taking financial chances for now.

  • Get preapproved: A mortgage preapproval letter is different from prequalification.  Prequalification is a baseline estimate of how much of a home loan you may be able to secure, based on an assessment of your income and other information you’ve provided. A mortgage preapproval letter is a document from a lender stating the exact amount of loan they’re willing to lend you, based on a more rigorous process that includes evaluation of your W-2s, bank statements, and credit score. 

Home shopping with a mortgage preapproval letter in hand gives you the ability to make an offer with confidence knowing it’s within your budget. It also demonstrates to a seller that your offer is serious and backed by a lender. 

2. Understand Your Mortgage Options

Mortgage loans have a variety of options, each with its own parameters and eligibility requirements. 

  • Conventional mortgages are the most common type of home loan. Some eligible first-time home buyers are able to obtain a conventional mortgage with as little as 3% down. Conventional mortgages are not guaranteed by the government. 
  • FHA mortgages are backed by the Federal Housing Administration and allow eligible buyers with lower credit scores to put down 3.5%. 
  • VA loans are available through the Department of Veterans Affairs for current or veteran military service members or qualified spouses and typically require no down payment. 

A 30-year fixed-rate mortgage means the loan is paid off in 30 years at an interest rate that remains the same over time. A 15-year loan usually has a lower interest rate than a 30-year mortgage, but with a larger monthly payment. 

It’s also important to be clear with your own goals and assess how much house you can afford, according to the bank, and how much house you want to afford.

If you have other debt to contend with such as student loans, car payments, or credit cards, you may choose to spend well under budget in order to keep your debt-to-income ratio in check. 

3. Make Informed Buying Decisions

With your finances in order and preapproval letter in hand, it’s time to give serious thought to home shopping.  

  • Find the right agent: Working with an established real estate agent is a smart choice, especially for a first-time home buyer. A buyer’s agent works on your behalf, helping you find homes that suit your needs and budget, gives advice in crafting an offer and helps to navigate the negotiation process all the way through to closing.   

Depending on your needs, you might consider working with a flat-fee real estate agent or broker which could net you significant savings in commission rates or fees.  

  • Find the right location: The old real estate adage “location, location, location” still holds true. Research neighborhoods you’re interested in and attend open houses, either in person or virtually. Check out the neighborhood’s walkability score, research property value trends, crime rates, and other municipal information like economic trends or planned improvement projects. 

If you’re moving to an area you’re not familiar with, for a job opportunity. For example, make sure you understand the cost of living in the new location.

Use the expertise of a good local realtor who knows the area to help you find the right house in the right location at the right budget. 

  • Find the right home: In contrast to previous generations, many millennial home buyers are prioritizing shorter commutes in walkable communities with better schools and amenities. They’re seeking low-maintenance homes with smaller square footage. While single-family homes are the right fit for some, townhomes and condos offer affordable choices as well. 

You may have a mental list of must-haves for your first home, but zero in on three or four priorities to help you focus your search. What’s most important? Proximity to work? Having designated space to work from home? A home you can “grow into” with an expanding family? Urban setting or quiet suburb? Starter or forever home? 

First-time buyers who are handy and willing to take on a few projects might consider a fixer-upper as an affordable option, particularly if the home is in a desirable area. However, be realistic.

Don’t overestimate your skills, or underestimate the amount of time or money you’re willing to invest in updating an older home.

Make sure you understand the basics of the appraisal process so you don’t end up overpaying for a property or making improvements that have a low return on investment.

Knowing your priorities will help you determine what kind of home fits your goals for the next five years, the amount of time typically recommended when investing in homeownership. Staying put for a minimum of five years decreases your chances of taking a financial hit when it’s time to sell. 

Purchasing your first home is a process that takes planning, patience, and persistence, but it’s all worth it when you’re holding the keys to your new living space. 

Understanding first-time home buyer priorities are your first step to a successful purchase. Best of luck!

New Data Shows Just How Much Income You Need to Buy a Home in 2021

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Are you ready to make the big financial leap and purchase your first home? Going from your parent’s home or even a rental property to your own house is a significant financial decision.

There are many questions to be asked, especially when it comes to your finances.

A new research report shows that while U.S. home prices are skyrocketing, income has remained mostly flat, making homeownership for Gen X, millennials, and younger generations more of a dream than a reality.

Since 1965, home prices have increased 7.6 times faster than income, and 3.1 times faster since 2008. Average home values grew from $171,942 to $374,900, an increase of 118%, while median household income grew from $59,920 to $69,178, an increase of just 15%, adjusted for inflation.

Financial experts recommend home buyers use a house-price-to-income (PTI) ratio of 2.6 when estimating how much mortgage they can afford. But from 2019 to 2021 alone, the median PTI ratio increased by 14.9% — from an already elevated 4.7 to 5.4 — meaning homes in 2021 cost 5.4 times what the average person earns in one year.

The PTI ratio crisis in the U.S. may impact both current and aspiring homeowners. Homeowners who paid top-dollar prices when they bought during the pandemic may currently be enjoying high home values, but they could be in trouble if those values plummet in the next housing crash.

Likewise, more home buyers are getting priced out of the market as mortgage rates climb (up from 3.14% to 3.18%), supply remains low, and prices remain high.

Read on for more insights into how these shifts are affecting the U.S. market and how home buyers can determine if they’re ready to get a foot in the door of homeownership.

Income Needed to Buy Home

How Much Income Do Americans Need to Buy a Home?

The median household income is currently $69,178. To afford a home in 2021, a U.S. home buyer needs an average income of $144,192 to afford the current median home price of $374,900.

The current PTI ratio of 5.4 translates to the number of years the average home buyer needs to save in order to purchase a home.

But more than a down payment and closing costs, sky-high home prices also translate to monthly mortgage payments that may be out of reach for some buyers who may already be at the limits of their home-buying budget.

Don’t forget to factor in the monies needed for escrows on taxes, insurance, and mortgage insurance.

Homes that need renovations and other improvements require even more financial considerations.

Housing affordability is a combination of home prices and income, and while the price-to-income problem is widespread with historic highs, it is low-income service workers who are most affected.

Though wages may be higher in larger metro areas, the lack of new affordable housing and exorbitant prices on existing housing stock undermine any wage advantage

The Most and Least Affordable Places to Live in the U.S.

The same research study found that nearly 90% of major U.S. metros have a PTI that exceeds the 2.6 ratio considered healthy by economic experts.

Only six out of the 50 largest major metro areas have a PTI ratio in the recommended range of 2.6 or lower:

  • Pittsburgh (2.2)
  • Cleveland (2.4)
  • Oklahoma City (2.5)
  • St. Louis (2.5)
  • Birmingham, AL (2.5) 
  • Cincinnati (2.6)

California is home to the least affordable housing in the U.S. with exceptionally high PTI ratios:

  • Los Angeles (9.8)
  • San Jose (9.1)
  • San Francisco (8.3)
  • San Diego (7.8)

The gap between soaring home price growth compared to relatively flat income growth touches other corners of the U.S. besides California. New York’s home-price-to-income ratio clocks in at 6.6, Miami at 5.6, Seattle at 5.5, and Salt Lake City at 5.2.

And as home prices outpace income rates nearly everywhere in the U.S. in the 50 most populated cities home values between 2017 and 2021 on average increased 17.8%, while income increased only 6.2% — meaning home prices grew 2.8 times faster than income.

Average home values in America’s 50 most populated cities grew from $271,70 in 2000 to $304,589 by the 2008 housing crisis, to $376,826 by 2021, reflecting the effects of the COVID-19 pandemic on the U.S. housing market.

Not surprisingly, in America’s most expensive cities, housing got more expensive: The average PTI ratio increased 61% since 2000, creeping up to 6.9%. In comparison, cities with the lowest PTI ratio grew just 10% since 2000, averaging 2.3.

More Equity Now Could Sink Homeowners Later

Climbing home prices increased homeowners’ equity from 2015 to 2020, likely a factor for the 54% decrease in underwater mortgages in the largest metro areas, a change of 12.2% to 5.6%.  

The cities with the biggest decrease in underwater mortgages include:

  • Salt Lake City (1081% decrease from 18.5% to 1.6%)
  • Las Vegas (513% decrease from 21% to 3.4%)
  • Phoenix (471% decrease from 16% to 2.8%)
  • Seattle (467% decrease from 10.3% to 1.2%)
  • Tampa, Fla. (315% decrease from 16% to 3.9%)

While homeowners are seeing increased equity now because ofo high home prices, it’s possible they could find themselves underwater in the next housing crash.

The housing crisis that was predicted in the first months of the COVID-19 pandemic never happened. Thanks to government aid, low-interest rates, and homebuyers seeking a geographic adjustment to pandemic problems, the housing market took off, sending prices skyrocketing as stock became limited.

In particular, homeowners who bought at the peak could find themselves underwater on their mortgages when the period of high demand and low supply tapers off as it historically does, and the housing bubble pops. And while it might be great for sellers, high home prices create a strain on the market if the pool of home buyers shrinks due to an inability to find an affordable property.

Can You Afford to Buy Right Now? 

Home buyers determined to purchase now should proceed with caution and consider the market and their personal situation carefully. Work with a qualified real estate agent who can help you navigate an uncertain climate.

Some questions to consider before you buy: 

  • Do you have 20% for a downpayment? Not only does a traditional 20% down payment lower your mortgage payment, but it also saves you the cost of private mortgage insurance, which can be anywhere between 0.3% and 1.2% of the balance of your loan.
  • How long do you plan to stay in the home? When the market pops, how likely is it you’ll be underwater on your mortgage? If you’re planning to stay in the home for the long haul, you’ll have time to build back any equity lost in a housing crash. 
  • What’s the post-purchase cost to live in this home? If you’re buying at the peak of the market, can you afford the monthly mortgage, plus taxes, insurance, and maintenance? 

Final Thoughts

Buying a home for the first time is a big deal both financially and mentally. A home purchase should never be ready until you are truly ready. Make sure your financial house is in order before making such a life-changing decision.

You should make absolutely certain you have the income needed to buy a home in 2021 and into 2022.

Would You Buy a Haunted House in This Real Estate Market

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Purchasing a Haunted House in 2022

With Halloween just around the corner we thought we would take a look at buying a home that has paranormal activity. Would you buy a haunted house?

If you said yes, you’re not alone. According to new research, 73% of Americans say they’d consider purchasing haunted real estate in a competitive market (but 52% say they wouldn’t pay full market value). 

Read on to learn more spooky stats and freaky findings from the survey.

76% of Americans Believe in the Supernatural in 2021 

Of those supernatural believers, 44% say they’ve experienced more supernatural events since the start of the pandemic. Millennials are 3x more likely than boomers to report an increase in supernatural activity. 

Buy Haunted House

44% of Americans Believe They’ve Lived in a Haunted House 

Perhaps with 71% of Americans with remote-friendly jobs now working significantly more hours from home, there’s more opportunity to observe ghostly comings and goings than in the pre-pandemic days. In 2020, just 24% of Americans believed they have lived in a haunted house. 

Some Things Are Scarier to Homeowners Than a Haunted House

Only 5% of respondents said ghosts were the scariest part of homeownership. Homeowners, instead, are more afraid of:

  • ​​Mold (57%)
  • Foundation issues (56%)
  • Termites (54%)
  • Asbestos (54%)
  • Water damage (54%)
  • Pests (e.g., cockroaches, mice, spiders, etc.) (53%)
  • A leaky roof (53%)
  • Outdated electrical system (51%)
  • Lead paint (51%)
  • A leaky basement (48%)
  • Old plumbing (47%)
  • Radon (44%)
  • A broken furnace (41%)
  • Broken central air conditioning (41%)

Whether you’re buying a home for your family or are an investor taking advantage of a 1031 exchange, there may be worse things than ghosts when it comes to living in or flipping a home.

If the potential for ghosts or other paranormal activity is there it may be one of the questions you ask when buying a house.

Also Scary: Many Americans Lack Basic Safety Features in Their Homes

Although American homeowners fear floods, tornadoes and other natural disasters (54%), fires (49%), and other hazardous threats, many households don’t have basic safety features in their homes. 

For example, many homeowners lack a radon detector (66%), an alarm system (45%), a carbon monoxide detector (40%), fire extinguishers (38%), and smoke detectors (29%). 

Ghosts Are Not a Top Deal Breaker for Most Americans

Nearly half (48%) of Americans would rather purchase a haunted house than live within a mile of a dump or waste management facility. Other deal breakers that top home buyers’ lists include buying a home near the scene of a violent crime (47%), a former meth lab (45%), or within a mile of a prison (44%). 

Many homebuyers are also not interested in property located next to a cemetery (39%), where someone died of natural causes (26%), or with an address featuring “666” (33%).  It might take some sleuthing to know if your potential home has a haunted or notorious history, but if it means you’ll be more comfortable knowing, it’s time well-spent. 

Americans Find a Competitive Housing Market Scarier Than a Haunted House

Buying a home in the 2021 ultra-competitive housing market is tough, and 73% of Americans said they’d consider purchasing a haunted home — up from 59% in 2020 — especially if there were other benefits to offset the occasional paranormal activity. 

A surprising 27% of respondents even said they’d be willing to pay above market value for a haunted house. 

For the most part, though, 63% of respondents said they’d consider a haunted house if it came with a lower price tag. Respondents also said they would consider one if it had: 

  • A safer neighborhood (57%)
  • Friendly ghosts (53%)
  • Modern renovations and/or appliances (41%)
  • A larger yard or more land (39%)
  • More square footage (38%)
  • A better school district (37%)
  • Closer to amenities (28%)

In a competitive market, buyers have less opportunity to be selective based on limited housing stock. 

The tight market could also be why more than 1 in 10 Americans said they wouldn’t move immediately even if they saw signs of paranormal activity. In one survey, 48% of respondents said they’d try to get to know the ghost, 13% said they’d try to get rid of the ghost, 17% said they’d ignore the ghost, while 21% said they would sell their house

Buying or Selling a Stigmatized House in a Competitive Market

Although many homeowners apparently feel comfortable sharing their space with spirits, others said they would put their home on the market immediately under certain conditions, including if objects moved or levitated on their own (45%), they saw a ghost (37%), or their children suddenly behaved strangely in the home (40%).

Others said they’d move if a serious crime was committed nearby (38%) or if they learned about a crime previously committed in the home (34%). 

Buying or selling a stigmatized home in a competitive market can be either a blessing or a curse, depending on which side of the buying/selling coin you’re on. A home might be stigmatized from its reputation for hosting paranormal guests, but it can also suffer from negative associations with infamous crimes, violence or other unfortunate events that may have occurred in or near the home. A famous home featured in movies or TV might also be stigmatized if it attracts an endless stream of tourists or fans. 

Because stigmatized properties are harder to sell — typically they sell for 3% less and take 45% longer to sell — buyers willing to overlook the negative psychological impact of such a home may be able to get a bargain. As a buyer, tell your real estate agent that you’re open to the possibility of a haunted or other hard-to-sell home if it means you can make an offer that allows you to stretch your dollars further. 

Keep in mind that even if the house you’re buying is stigmatized, you still need to do your due diligence, especially if the market is ultra competitive. Make sure your credit score is healthy, your financing is in order, and this is the right house for you. Remember, chances are, you may encounter the same challenges in eventually selling the home in the future. 

Homeowners desperate to unload a stigmatized home and move as quickly as possible should be aware of the disclosure laws in their state. Some states require that sellers inform buyers of any stigmas associated with the property, but 62% of the survey’s respondents said they wouldn’t disclose a haunting to potential buyers if possible, (including 10% who would refuse even if the law required it). 

Work with a broker who can help you frame the sale as an opportunity for buyers looking to make a wise purchase and don’t mind working with, rather than against, the notoriety.

How Does Appraisal Gap Coverage Work When Buying a Home?

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When buying a home, things don’t always go according to plan. Sometimes, your bank’s appraisal of a house comes up lower than your offer or even the seller’s asking price. If so, do you just walk away from your dream house?

An appraisal gap coverage will help you seal the deal on your dream house in such a situation. Let’s take a look at the meaning and usage of appraisal gap coverage.

The Basics: Appraisals And Offers

An appraisal is an estimation of a home’s value in the current market. Mortgage lenders carry out an appraisal by a licensed real estate appraiser to ensure that the buyer doesn’t overpay for a property. It also guarantees that they’ll be able to sell the property for the same value should you fail to pay the mortgage.

In a competitive market, buyers may offer a higher value than the selling price to get their offer accepted. Sometimes the appraisal value comes up lower than the buyer’s offer, and sometimes even the seller’s price.

Sometimes, sellers don’t do the things they should do to prepare for the real estate appraisal, which can influence how the appraiser perceives the property.

The appraisal gap coverage could be your saving grace when this happens.

Appraisal Gap Coverage

Appraisal Gap Coverage: Explained

The scenario for buying a house is pretty much identical. You find a home that you like, and you negotiate the price. If the property is in high demand, you may offer a higher price than the asking price.

The seller accepts your offer, and then you apply for a mortgage. The mortgage lender then goes to appraise the property. If all goes well, the appraisal and your offer match. But rarely does that happen.

When the appraised value is lower than your offer, the seller and buyer have a few options:

Option A: the buyer convinces the seller to accept the appraised price.

Option B: the buyer covers the gap between the appraised price and their offer.

If neither A or B is possible, the deal will fall apart. However, there is another option—an appraisal gap coverage.

The appraisal gap coverage is the buyer’s assurance to the seller that they will cover a certain amount of the gap between the appraisal and the offer.

For example, if a house is listed at $300,000, the buyer may offer $310,000 with a $5,000 appraisal gap coverage. Then, the property is appraised at $305,000. The appraisal gap coverage then kicks in, so the buyer has to come up with $5,000 in cash to meet the offer price.

What If Your Appraisal Gap Coverage Still Doesn’t Meet The Offer Price?

What happens if the appraisal gap coverage still comes up short of your offer? For example, if you offered to buy a $300,000 at $315,000 with a coverage of $5,000, that is then appraised at $305,000.

With your coverage, the purchase price becomes $310,000. Although the total sale price is lower than your offer, it is still higher than the seller’s asking price.

So, they will still likely agree with this price. Additionally, you get to buy the house at a lower price than you originally intended. So, overall, it is a win-win situation. Thus, you can still push through with the sale.

Why Do You Need Appraisal Gap Coverage?

An appraisal gap coverage gives you an advantage over other buyers. Even if you offer to buy a house way over the asking price, it provides your offer substance through the insurance to cover the gap between the appraised value and your offer.

Including this with your offer makes the seller more likely to accept your offer over, for example, an equal offer without an appraisal gap coverage. This is because, with an appraisal gap coverage, the buyer is less likely to walk away from the deal regardless of the house’s appraised value.

Thus, it guarantees the buyer that they will pay for the property at a higher value than the asking price. Simultaneously, it reduces the chance of deals not pulling through.

How Does An Appraisal Gap Coverage Work With An Offer?

After the seller accepts your offer, you need to put your agreement in writing. This is when you will need to contact a real estate attorney to draw up a real estate sales contract or to review the one provided by the seller. The agreement will state the agreed-upon price, the appraisal gap coverage, and other essential terms of the sale.

Usually, when writing the appraisal gap coverage into the sales contract, you specify a fixed amount that you are willing to cover. Your contract should never state that you will cover an unlimited amount between the offer and the appraised value.

The contract should also state that the appraisal gap coverage should not exceed the agreed-upon amount. So, for example, if the appraised value is at $307,000 and you offered to pay $310,000 with an appraisal gap coverage of $5,000, you will only cover the remaining $3,000.

In any case, the appraisal gap coverage puts you at an advantage as a buyer because it guarantees a win-win situation for both you and the seller.

There are several instances where the explained scenario may not necessarily play out as simply as described. An example might be when the property to be purchased is being done under the auspices of a legal entity like an LLC or corporation or other such business entities, especially those with multiple owners.

In such circumstances, there may, for instance, be specific provisions contained within the operating agreement or bylaws of the entity that stipulates how or what may or may not be permitted in the acquisition of a new property or asset.

When such is the case, it is usually a good idea to ensure that the operating agreement is reviewed by an experienced business attorney to ensure that your appraisal gap offer or the contract you enter into with the seller does not violate any terms contained within.

About the author: The above article on the appraisal gap coverage was written by Kanayo Okwuraiwe. Kanayo Okwuraiwe is a startup founder, an incurable entrepreneur, and a digital marketing professional. He is also the founder of a digital marketing company called Telligent Marketing LLC that provides attorney SEO services to help lawyers grow their law practices.

Should You Buy New Construction or an Existing Home?

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Until recently, one tried-and-true assumption about buying versus building held firm: Building a custom home was a drawn-out, messy process that in the end got you more bang for your buck — instant home equity. 

Today, however, you can’t take that for granted. COVID-related supply chain problems have driven building supply prices skyscraper-high and added about $35,000 to the cost of building an average home. 

So, should you build or buy a home in 2021?

What’s Happening to Building Supply Prices?

That said, kinks in building supply inventory are temporary, and lumber prices have been dropping for weeks. The effect of lower prices at the wholesale level has not yet filtered down to builders, who buy at the retail level. 

The good news for aspiring homeowners is that the cost of building should fall back a bit in the upcoming weeks.

According to the National Association of Home Builders (NAHB), “Depending on the rate and consistency of price decreases and whether prices have stabilized at the lower level, it may take a few weeks to a couple of months for builders to see price relief on the order initially reported in the futures or cash markets.” 

Should I Buy or Build a House

Different Types of Construction

There is more than one way to build a home. You might choose to buy new construction from a developer, have a custom home built to your specifications, or bargain hunt with a fixer-upper and remodel it from the ground up.

You may even consider going with an Eco-Friendly home.

When comparing the cost of building to buying, get a commitment for constructing the custom home you want at current prices. Compare that to a new developer home with similar features, a bargain that requires some fixing, and an existing home in excellent condition with the features you want. 

If price is your primary consideration, go with the property with the lowest acquisition cost — including buying, building, repairing, financing, and closing costs.

Note that construction financing costs more than conventional mortgages. However, there are many other considerations in addition to the cost.

You can avoid additional construction loan financing expenses when buying a spec home and getting a traditional mortgage.

Buying a Home: Pros and Cons

Buying a home is the more popular option. That mainly comes down to three advantages:

Timing

It usually takes 30 to 60 days to find, finance, and purchase a home, while building a house takes six to 18 months. People who face deadlines — such as moving for a new job or moving in time to get their children into new schools — don’t always want to rent during the building process, and they don’t relish the “opportunity” to move twice. 

More Choice in Neighborhoods

If you want an established neighborhood with vintage homes and mature landscaping, there may not be empty lots waiting for someone to build. And if you want the community with the best schools, there may not be lots available at all.

Often, new areas with building opportunities are on the outskirts or suburbs, perhaps not your ideal. Your best bet might be a well-built existing house or a fixer-upper if you live with construction chaos for a few months.

Stretch out Costs

You can usually find a cheaper existing home than you’d spend for a brand-new house. It might be more manageable to buy an affordable house and then upgrade it as money comes in.

On the other hand, older homes can have obsolete systems and be energy hogs. And you might not want to look at 1990s-era bleached wood and brass finishes until you can get around to remodeling.

Building a Home: Pros and Cons

Customization

The most popular reason for building a home instead of buying is the ability to get exactly what you want — whether that’s energy efficiency, smart home features, or very specific items such as a dog washing room, home theater, or stone pizza oven. 

Safety 

Another major benefit of building a new home is that your systems are new, up to code, and unlikely to fail. Maintenance costs are much lower for a new home. You’ll also be able to take advantage of manufacturer and builder warranties.

While with a resale home, you’re pretty much stuck with repairs once you close, and the odds of something malfunctioning are much higher. 

Cost

Regarding which option costs more, it depends on the project, local housing markets, and labor costs. Note that if you purchase a newly constructed home from a builder/developer, the profit (19% gross and 7% net, according to the NAHB) goes to the builder.

While if you contract for a custom build, you split the profit with the builder and typically gain some equity instantly. And you can cut costs substantially with “creative” building plans — tiny houses, modular homes, and kit homes. 

These are cheaper housing options worth looking into.

You should commission an appraisal for your property — as-is and as completed. Then you can compare the expected build cost with the projected home value and see if building is cost-effective. 

Do’s and Don’ts for Builders and Buyers

Understand what you’re getting in a home. Whether you’re buying or building, make sure everything you need is in your contract. If you want the high-tech refrigerator and hot tub on the deck, make sure the sellers aren’t planning to take those items with them. 

Homebuilders often don’t include things you might consider basics — paved driveway, landscaping, sodding, eavestroughs, or air conditioning, for instance. If you’re considering a newly built home, make sure the features you require are included or price them out to determine if your budget is reasonable. 

Understand that things will take longer than expected and do everything possible to speed things up. Line up your financing and get your mortgage pre-approval before hunting for property.

If you’re effecting a 1031 exchange (legal in all states from California to New York), get your paperwork in order — you normally have 180 days to complete the tax-deferred exchange or face stiff penalties. 

Find a few reputable builders and get bids from each. Builders normally won’t pull permits and start until they have a signed, binding contract and your deposit.

Be certain that any builder you consider is approved by your mortgage lender — that helps you avoid shaky contractors. Expect construction to take six to 18 months, and understand that every change you request once underway will cost you money and add time. 

Splitting the Difference: Buy a Fixer-Upper

Fixer-uppers can provide the best of both worlds. You can find a less-than-perfect home in your dream neighborhood. Purchase your rundown house at a discount and then hire a builder to upgrade the systems, increase energy efficiency, and make it safer and more attractive.

You can finance the purchase and rehab with a single loan. Pay attention to the improved value of the property on your home appraisal. That will tell you if it’s cost-effective to buy used and improve rather than to purchase new.

Make Friends With a Good Agent

Building sites that meet your needs, perfect properties in your chosen neighborhoods, and potentially profitable fixer-uppers don’t stick around long on real estate markets. 

To get an advantage in your search, find a knowledgeable, reputable agent who can quickly locate what you need and perhaps come up with creative solutions. Not using a good agent puts you at a disadvantage in today’s hotter markets.