South Florida Real Estate and Community News

Jan. 11, 2023

Buying a Condo vs Single Family Home

This has been one of the most controversial topics with our clients when it comes to selecting a suitable property for their primary or secondary residence. In my experience, our south Florida second home owners prefer condominiums for simplicity of maintenance and security. The majority of them come from the upper east coast and the mid-upper west of the country, and they are unaware of the ups and downs of living in a community. Most of these individuals reside in single-family houses in their towns, unless they are from metropolitan areas and are surprised at how much room and location they can acquire for their money, and the converse is true for suburban residents who find south Florida properties expensive. Those who live in suburban condominiums are frequently empty nesters on the verge of retirement.

 

Because condominium rules did not become effective until 1963, many buildings in Florida are still organized as co-ops. Prior to this date, developers would lease such land from a landowner for up to 100 years and build a high- or low-rise building on it, with the lease fee included in the monthly HOA payments. For many individuals, this was a fantastic opportunity to acquire a home at a far lower cost than fee-simple property. Co-ops allowed residents to own a house with the lease and construction costs plus developer profit, resulting in a significant discount on these properties compared to single-family dwellings. People were not concerned about the lease period because 100 years looked far away. There were several examples when the lease had expired and the landowner refused to renew or requested a significant increase in monthly payments, but these were rejected by courts due to public interest and the leases were required to be renegotiated fairly. Of course, there is always uncertainty! Today, the majority of coops either own their property and retain the cooperative structure for complete control, or they acquire the land and convert to a condominium.

 

Co-ops have share holders rather than owners because, when you engage in a cooperative relationship, you own enough shares to be allocated a certain unit, but you do not receive a deed for that unit. These cooperatives have more authority and are exempt from condo restrictions, allowing share holders to freely select how they want their cooperative to function. Although the Housing Authority continues to oversee them for discrimination and other social concerns, the board members and share holders can dismiss anyone with a majority of votes from the members. That is why many co-ops want to be controlled in this manner so that they may be more stringent about who can become a shareholder and how the premises are used. Another significant disadvantage is the financing of these shares. Only a few local banks may consider financing land-owned co-ops with a minimum 50% down payment for a limited time. Banks do not consider them tangible assets. It's really no different than buying Google shares and receiving free computer rooms, entertainment, and other perks in exchange. These constraints can still result in a terrific deal for people who wish to be in a desirable section of town for half the price.

 

Condominium regulations were designed for this reason, so that people might own a portion of the building, including a portion of the common spaces, as an asset. When a buyer purchases a condo, he or she receives a deed for that specific unit in the building and agrees to pay HOA fees to the board to cover master insurance, management, and running expenses. The setup is quite similar to a co-op, with the exception of being accountable for the deeded unit and obtaining HO6 insurance. Condominiums are easier to finance based on their budget and the condition of the building, which is why they appreciate significantly faster than co-ops. Some condo buildings are even approved for the FHA's First Time Home Buyers Program, which requires only 3% down. The harsh reality is that 99 percent of structures in South Florida demand a minimum down payment of 10% to 20% and are not FHA-approved. The greater the reserves and the better the state of the building, the greater the down payment and approval on the mortgage note.

 

These two structures are not the same as single-family residences. The majority of single-family homes are built on fee simple properties, which means that the owner owns both the land and the structure. Unless the laws are different if the home is being financed, the owner has complete authority over property maintenance and insurance. If it is owned outright, the property owner can alter it, from the layout of the backyard to the architectural component of the home, without the need for another vote. Some communities may impose limits on the exterior color or height of the home, but independence is crucial when it comes to owning a single-family home with a high maintenance cost. People want to own a piece of the earth and build a house that represents their worth and image. Finance and transfer are considerably easier because there is no association that needs to authorize the buyer for financials and history. A fee simple property owner has the right to sell the property to anyone at any time.In addition, the building on the site may be destroyed to offer a less expensive option than holding on to it as an investment. The liabilities and taxes on vacant land are quite minimal.

 

Some alternative communities provide single-family houses through a volunteer group in order to maintain the area more orderly and secure for their inhabitants. With the city's permission, they might decide to put up a car gate or take care of the landscaping in the common area, for example.

 

The majority of the combined townhouses are fee simple properties; however, there is an association because of the shared roof and planting areas. Some people prefer This way of living is low-maintenance.

 

Based on the purchase price, the maintenance cost of a single-family home, co-op, or condominium will be quite similar. The key distinction is who and when decides to repair or improve it. Voted board members would be held accountable for any changes made after receiving community approval, whereas the single family owner could do whatever he wants. Ultimately, purchasers pick a lifestyle since either the insurance, landscaping, or utilities are paid through the organization or privately, and the cost is comparable!

Posted in Buying a Home
Dec. 16, 2022

Florida Legislature and Property Insurance: What Changed?

Lawmakers finalized three bills that, among other things, eliminate one-way attorney fees, nix assignment-of-benefit options and further depopulate Citizens Ins.

TALLAHASSEE, Fla. – The Florida Legislature wrapped up their special session on Wednesday after passing three bills.

“If you had to sum up the major outcomes of the insurance reform bill in a single sentence, it would indicate that the bill will curb the massive amounts of lawsuits that are driving up premiums, stabilize reinsurance coverage and shrink the state-backed Citizens Property Insurance Corp.,” Florida Realtors® Vice President of Public Policy Andy Gonzalez said after the session ended.

In addition to a sweeping property insurance bill, two other bills passed by lawmakers focused on disaster relief and another regarding toll relief for heavy users of Florida’s toll roads. All bills have been sent to Gov. Ron DeSantis. He is expected to sign them into law and has until Dec. 29, 2022, to do so.

Property insurance reforms

Senate Bill 2A: Gonzalez calls the reform in 2A “a huge win for the state of Florida and absolutely essential steps Florida needs to take to attract insurance and reinsurance capital back to the state.” They “tackle the root causes driving insurers away”:

  • Elimination of one-way attorney fees: Insurance industry experts have long blamed lawsuits for driving up costs that lead to financial losses and higher homeowner premiums. The chief driver of the lawsuits is a provision known as “one-way” attorney fees in property-insurance cases. One-way attorney fees allow the plaintiff (policyholder) to recover attorney fees, but not the defendant (insurer). The practice incentivized unwarranted litigation.
  • Elimination of Assignment of Benefits: AOB was another litigation-related cost-driver for insurers that pushed policy rates higher. Under AOB, homeowners who suffered a loss “assign” insurance benefits to a contractor that then deals directly with their insurance company.
  • New temporary reinsurance program: The cost for reinsurance – essentially insurance for insurers that kicks into gear following major post-disaster losses – has risen, and those higher costs are baked into the rates homeowners pay. Property insurers generally buy reinsurance coverage on the private market and from the Florida Hurricane Catastrophe Fund, a state program. The bill adds additional levels, known as “layers,” of reinsurance funded through $1 billion from the state and premiums paid by insurers.
  • Efforts to depopulate Citizens: Citizens Property Insurance – the Florida-operated “insurance of last resort” – more than doubled in size during the past two years and now has about 1.13 million policies. The larger the number of policies, the greater the risk faced by Florida taxpayers after a disaster. The bill includes new or boosted ways to move homeowners with Citizens policies back into the private market. For example, Citizens policyholders now can’t renew their coverage if they receive private-insurer coverage offers within 20% of Citizens premium costs. The bill also phases in a requirement that Citizens customers buy flood insurance, which is not included in other homeowners’ policies.
  • Shortened claims filing: To reduce the number of frivolous lawsuits, the bill reduces the deadline for policyholders to report a claim under their policy from 2 years to 1 year for a new or reopened claim, and from 3 years to 18 months for a supplemental claim.
  • Accelerating claims payment: Among other things, the bill amends the prompt pay laws to encourage faster claims payments. It reduces the time for insurers to 1) pay or deny the claim from 90 to 60 days, 2) review and acknowledge a claim communication from 14 days to 7 days, 3) begin an investigation from 14 days to 7 days, and 4) conduct a physical inspection from 45 days to 30 days.
  • More funding for the Office of Insurance Regulation: The bill allocates $1.7 million for Florida’s Office of Insurance Regulation to investigate bad faith carriers and hire and retain the staff they need to properly regulate the industry.

For complete information, check the Florida Senate analysis posted online.

Leaders of the insurance reform efforts acknowledge that the bill likely won’t lead to immediate rate reductions for homeowners. They say it is designed, at least in part, to draw investments in the insurance market and spur competition.

Hurricane relief

Senate Bill 4A: Lawmakers passed a number of disaster relief efforts after two hurricane strikes in 2022. The bill provides:

  • Tax relief for residential property rendered uninhabitable for at least 30 days through property tax refunds. It also extends property tax deadlines and discounts for owners of property destroyed or rendered uninhabitable due to Hurricane Ian or Nicole.
  • $150 million for affordable-housing hurricane relief efforts. Of that money, $60 million will go to local governments to help with the repair or replacement of housing, relocation costs, housing reentry assistance and insurance deductibles; $90 million will fund the Rental Recovery Loan Program to promote development and rehabilitation of affordable housing in affected areas.
  • $350 million needed to secure funding from FEMA Public Assistance Grants – the entire amount required for a one-half local match.
  • $100 million to supplement the existing Beach Management Funding Assistance Program and $50 million to create the Hurricane Restoration Reimbursement Grant Program. 
  • $100 million to create the Hurricane Stormwater and Wastewater Assistance Grant Program to provide financial assistance to local governments. 
  • The bill also creates the Florida Emergency Management Assistance Foundation to provide assistance, funding, and support to the Department of Management services. 

For a full analysis, refer to the Senate staff analysis of the bill posted online.

Toll relief

Senate Bill 6A: The bill directs the Florida Turnpike Enterprise (FTE) to establish a toll relief program that will be effective for one entire calendar year (Jan. 1 to Dec. 31, 2023) for all Florida toll facilities that use a Florida-issued transponder or are interoperable with the Florida Department of Transportation’s (FDOT’s) prepaid electronic transponder toll system (SunPass). The bill will:

  • Provide a 50% account credit to Florida residents with an electronic prepaid toll program account, such as SunPass, who record 35 or more transactions a month. 
  • Appropriate $500 million to reimburse toll facilities for issuing these credits.
  • Require Florida drivers using the prepaid toll program to have an account in good stating, with the account credit posted the month after the credit is earned.

The full Senate staff analysis of the bill can be found here.

Dec. 15, 2022

Prepping to Buy a Home or Invest in 2023?

If so, ask some questions to help get ready for a successful outcome, like what would you be willing to sacrifice in terms of space to be able to afford a home?

It has been quite the year. In 2022, we’ve lived through high inflation, stock market lows, housing market frenzies and ongoing Federal Reserve rate hikes. Although we don’t have a crystal ball to predict what will happen to the economy next year, we could use this year’s events as a guide: Things may continue to be rocky.

If homeownership and investing are on your 2023 goals list, here are some questions to ask yourself before whipping out your spreadsheet, money apps or notebooks.

What am I willing to sacrifice in terms of space?

Whether you have a goal of buying a new home or renting a new place next year, there’s a lot to consider. For instance, 30-year fixed mortgage rates went from an average of 3.45% in January to 6.90% in October thanks to inflation and Fed rate increases. The Fed has already raised interest rates 75 basis points four times this year. This, coupled with housing shortages, has driven the national median price of homes above $400,000 for the first time, according to the National Association of Realtors.

Homeownership may still be an attainable goal, but you might have to make some sacrifices.  You need to evaluate what you are willing to give up in space in order to own property.  You may have to gradually get to where you want, as opposed to just going straight into a single-family house.

This could mean starting off with a condo or townhouse and then using the equity from the condo to purchase your next property, Harris says.

How can I make homeownership more affordable?

Another portal to homeownership  is the Neighborhood Assistance Corporation of America, also known as NACA. It’s a mortgage program that allows working people to purchase a home with no down payment, closing costs, fees or stringent credit prerequisites.

Members can also buy their homes at a below-market interest rate. The program is currently in 28 states and the District of Columbia.

Buying a home in 2023 could also be more attainable if you’re willing to get a roomie, says Jocelyn Wright , a CFP and retirement income certified professional at PF Wealth Management Group in Bala Cynwyd, Pennsylvania. This is something she did with her sister in 2017.

“It’s not going to be forever necessarily, but this gave us the opportunity to have our own home, and we can leverage the equity and all of that going forward,” she says.

How diverse is my portfolio?

This year hasn’t been the greenest for investors – at the start of December, the S&P 500 was down more than 15% this year. The market’s volatility could understandably make investors unsure about how to move forward. Financial professionals say a diverse portfolio and taking the right amount of risk might be steps in the right direction.

Keep diversification in mind.  Diversification is when you invest in a variety of assets to manage risk and market volatility. The FTX and BlockFi collapses that happened in November are a reminder about why to avoid investing too heavily in one area.

Unfortunately, a lot of newer investors were very excited about Bitcoin, crypto, and all of that, and forgot those lessons.  You don’t put your short-term money into the market, and those rules always apply.  I consider short-term money to be cash you’ll need in 12 months to three years.

Instead of putting all of your money into the stock market, put the amount you’ll need in the near future into an emergency fund, high-yield savings accounts, a certificate of deposit or short-term fixed-income securities like Treasury bills.

How much risk can I take?

Ask yourself how much risk you’re comfortable taking. That depends a lot on your circumstances, but risk isn’t something to be afraid of when you have enough income, an emergency fund and a diverse portfolio. And risk is worth it when you invest for the long term and can reap those long-term rewards.

Younger people who are further away from retirement can and should be willing to take on more risk. 

If you haven’t started investing, or stopped investing due to money being tight, remember you can always invest at a pace that feels comfortable for you.

You have to invest and become comfortable with that, whether that’s biweekly, bimonthly or monthly.

You can always start with lower-risk investments if you want to play it safe. Some include I bonds, money market funds or Treasury-Inflation Protected Securities, also known as TIPS.

I hope you found this information useful and gave you some ideas for 2023!

Nov. 10, 2022

Eleven Takeaways From the 2022 Profile of Home Buyers and Sellers

1. First-time buyers drop to an all-time low of 26% from 34% just a year ago.

There is no question that housing affordability has shut out first-time buyers with the rise in interest rates and home prices. During the data collection period, buyers also saw the lowest inventory in the U.S. since 1999—a picture that impacted first-time buyers more than any other group as investors jumped in. Potential first-time buyers also face a rise in rental costs making it challenging to save for a down payment.

Line graph: First-time Buyer Share Among Primary Residence Buyers, 1981 to 2022

2. The age of first-time and repeat buyers hit all-time highs.

The age of first-time buyers jumped to 36 from 33 years, where it had been for three years. Provided the headwinds first-time buyers faced, this may not be a surprise. Twenty-six percent of first-time buyers reported "difficulty saving for a down payment" was a challenging task in the buying process and cited higher rental costs, car loans, credit card debt, and student debt as factors holding them back. For repeat buyers, the age has risen to 59 years, up from 56 years in last year's report. Americans feel confident taking on a mortgage later in life and purchasing a primary residence. Trades have happened later as tenure in the home has also increased.

Line graph: Median Age of Home Buyers, 1981 to 2022

3. The share of White and Hispanic/Latino buyers grew, while Black/African American and Asian/Pacific Islander buyers retreated.

From research produced throughout 2022 by NAR Research, Black/African American renters are paying a disproportionate amount to rental costs. As these rents rise, it is further holding back Black buyers, who are also more likely than others to be first-time buyers. White buyers are most likely to be repeat buyers and to have housing equity to assist them with the down payment of their next property.

Line graph: Race/Ethnicity of Home Buyers, 1997 to 2022

4. Small towns and rural areas saw a migration flow while there was a retraction of buying in urban areas and the suburbs.

Buyers choose their neighborhood based on many factors, but the top of the list was the quality of the neighborhood, affordability, and proximity to friends and family. Small towns and rural areas proved to be the winning dynamic for many when making that choice—affordability was key, and family support systems were just down the street.

Stacked bar graph: Location of Home Purchased, 2003 to 2022

5. How far a buyer moved jumped to an all-time high of 50 miles from a range that had been steady between 10 to 15 miles.

Buyers' migration to small towns and rural areas was undoubtedly at play. Another factor is remote and hybrid work settings. In January 2021, many headlines touted that CEOs provided employees with permanent remote work. This allowed buyers to separate themselves from city centers or inner suburbs and migrate to farther areas. Zoom towns were the boom towns in the last year.

Line graph: Distance Between Home Purchased and Previous Residence, 1989 to 2022

6. The share of all-cash repeat buyers jumped from 17% to 27% in the past year.

Homeowners have accumulated tremendous housing equity in the last decade and hold about $210,000. This has allowed many to avoid holding a property mortgage and pay all cash for their purchase. As the location to purchase in small towns and rural areas became more popular in the last year, this may have further allowed buyers to move from expensive areas to more affordable ones. The share of first-time buyers who paid all cash remained essentially unchanged at 3%.

Line graph: Buyers Who Financed Their Home Purchase, 2002 to 2022

7. Tenure in home, before selling, returned to an all-time high of 10 years.

After a pandemic-driven drop last year to eight years in the home, tenure has risen to an all-time high. Between 1987 and 2008, the typical tenure was just six to seven years before someone made a trade. The top reasons sellers made the change in the last year were to be closer to friends and family, moving due to retirement, and their neighborhood had become less desirable. In past years, moving had been more common due to a change in a family situation or a job relocation.

Line graph: Median Seller Tenure in Home, 1987 to 2022

8. Expected tenure for first-time buyers hits an all-time high of 18 years, up from seven years in 2007.

If a first-time buyer was able to enter the homeownership ladder in the last year, they would have less intention of moving from their home quickly. The expected tenure of first-time buyers even surpasses that of repeat buyers of 15 years. Buyers have locked-in rates in a rising rate environment, which likely plays a key factor. For others, the ability to purchase a home in a less urban area may mean just skipping the starter home altogether. One note is that expected tenure is always longer than actual tenure, as buyers have just finished the tremendous hurdle of finding a home and purchasing.

Line graph: Median Expected Buyer Tenure in Home, 2007 to 2022

9. Buyers are diversifying where they pull together the down payment for a home.

Given the rise in home prices, buyers are pulling together funds from multiple sources for their down payment. First-time buyers rely on savings as the primary source, but 22% (down from 28% last year) did use a gift or loan from friends/family, and 15% either sold stocks/bonds or took a loan from their 401k/retirement fund. New this year, 2% of first-time buyers sold cryptocurrency to help with the down payment. While half of repeat buyers used proceeds from the sale of their past home, this does not work for all. Forty-one percent used savings, and 11% even sold stock or took a retirement loan.

Bar graph: Downpayment Sources for Recent Buyers

10. First-time buyers moving directly from a family member's home into homeownership is at an all-time high.

Twenty-seven percent of first-time buyers had this prior living arrangement, up from 21% the past year. These buyers were able to skip rental increases by moving into a home. This allowed first-time buyers to pay down debt, work on their credit scores and save for a downpayment the way others may not have been able to. The share of first-time buyers who rented before buying dropped to 64% from 73%.

Stacked bar graph: Prior Living Arrangement of First-time Home Buyers

11. Buyers and sellers use and want the help and expertise of a real estate agent.

Eighty-eight percent of buyers used a real estate agent to purchase their home. Buyers are most satisfied with their agent's honesty and integrity, and knowledge of the purchase process. For sellers, 86% used an agent to help sell their home. Sixty-three percent of sellers used an agent that they had worked with before or that was referred to them. Sellers most wanted their agent to price the home competitively, help market the home to potential buyers, and sell within a specific time frame.

Line graph: Purchased Home Through an Agent or Broker, 1981 to 2022
Line graph: How Seller Sold Home, 1981 to 2022
Oct. 25, 2022

Should You Still Buy a Home with the Latest News About Inflation?

While the Federal Reserve is working hard to bring down inflation, the latest data shows the inflation rate is still high, remaining around 8%. This news impacted the stock market and added fuel to the fire for conversations about a recession.

You’re likely feeling the impact in your day-to-day life as you watch the cost of goods and services climb. The pinch it’s creating on your wallet and the looming economic uncertainty may leave you wondering: “should I still buy a home right now?” If that question is top of mind for you, here’s what you need to know.

Homeownership Is Historically a Great Hedge Against Inflation

In an inflationary economy, prices rise across the board. Historically, homeownership is a great hedge against those rising costs because you can lock in what’s likely your largest monthly payment (your mortgage) for the duration of your loan. That helps stabilize some of your monthly expenses. James Royal, Senior Wealth Management Reporter at Bankrateexplains:

A fixed-rate mortgage allows you to maintain the biggest portion of housing expenses at the same payment. Sure, property taxes will rise and other expenses may creep up, but your monthly housing payment remains the same.”

And with rents being as high as they are, the ability to stabilize your monthly payments and protect yourself from future rent hikes may be even more important. Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), explains what happened to rents in the latest inflation report:

“Inflation refuses to budge. In September, consumer prices rose by 8.2%. Rents rose by 7.2%, the highest pace in 40 years.”

When you rent, your monthly payment is determined by your lease, which typically renews on an annual basis. With inflation high, your landlord may be more likely to increase your payments to offset the impact of inflation. That may be part of the reason why a survey from realtor.com shows 72% of landlords said they plan to raise the rent on one or more of their properties in the next year.

Becoming a homeowner, if you’re ready and able to do so, can provide lasting stability and a reliable shelter in times of economic uncertainty.

Bottom Line

The best hedge against inflation is a fixed housing cost. If you’re ready to learn more and start your journey to homeownership, give me a call!  

Sept. 19, 2022

Miami named one of the 10 U.S. cities with the worst housing shortage

Miami ranks No. 5 among major U.S. cities with the worst housing shortages, according to an analysis by Angi.

Angi used data from Freddie Mac and Realtor.com to assess population trends, available housing and home price index percentage changes. It also measured available affordable housing to arrive at its ranking of the 10 cities facing the “worst housing shortage.”

The analysis pointed to construction slowdowns during the COVID-19 pandemic as one factor in creating housing shortages. It also noted that much of what is available is out of the price range for many locals. “Simply put, what is available isn’t affordable,” the report said.

The cities with the worst housing shortages, according to Angi, in order: San Jose, California; Washington, D.C.; San Francisco; Boston; Miami; Boulder, Colorado; Salt Lake City; San Diego; Minneapolis; Los Angeles.

Aug. 4, 2022

CoreLogic: Miami home-price increases top national average in June

The pace of home-price increases in Miami topped the national average in June as economic headwinds dampened buyer demand across the country, CoreLogic reported, citing its monthly Home Price Index

Specifically, home prices were up 25.3% in Miami on a year-over-year basis, compared to 18.3% nationwide. Looking ahead, CoreLogic expects national year-over-year appreciation to slow to 4.3% by June 2023. 

“Signs of a broader slowdown in the housing market are evident, as home-price growth decelerated for the second consecutive month,” said Selma Hepp, interim lead of the Office of the Chief Economist at CoreLogic. “This is in line with our previous expectations and given the notable cooling of buyer demand due to higher mortgage rates and the resulting increased cost of homeownership. Nevertheless, buyers remain interested, which is keeping the market competitive — particularly for attractive homes that are properly priced.” 

Single-family homes experienced annual appreciation of 18.7%, compared to 16.6% for attached properties. 

Tampa, Florida, again posted the highest annual increase among the country’s 20 largest metro areas, at 32.6%, followed by Phoenix, at 26.1%. 

July 21, 2022

The Housing Market Is Correcting—So Why Are Home Prices Still Soaring?

Home prices have continued their seemingly inexorable rise, despite America’s housing market purportedly being in the throes of a correction, a slowdown—whatever you want to call it. It’s defying what many experts predicted and, just maybe, conventional wisdom.

Buyers can’t afford these higher prices on top of higher mortgage interest rates. Deals are falling through. Bidding wars are drying up. Six-figure offers over the asking price are going the way of the dinosaurs. So how is it possible that median home list prices were 15.9% higher in the week ending July 9 than they were a year ago, according to Realtor.com® data?

The disconnect appears to be that home sellers have yet to adjust to this new reality—the one where they can’t slap whatever price they’d like on their properties, sit back, and wait for the bidding wars to commence. Surging mortgage rates have made it impossible for many buyers to afford what they could have just a few months ago.

Meanwhile, record-high home prices are up more than 31% over the past two years, according to Realtor.com June list price data. And they keep rising. Something seems like it needs to give.

“Prices adjust really slowly,” says Realtor.com Chief Economist Danielle Hale. “Sellers are shaped by recent experiences. Before we see prices start coming down, we’re going to have to see sellers stop shooting for the moon.”

And just because sellers are asking for more money, it doesn’t mean they’re getting it. Buyers are negotiating. The number of price reductions on properties doubled in June compared with a year earlier.

Last month, about 11% of builders dropped prices on newly constructed homes, according to building consultancy Zonda. An additional 70% kept them flat compared with May.

“Real estate markets freeze when you see a big change in mortgage rates or the economy,” says Mark Zandi, chief economist at Moody’s Analytics. “Buyers cannot handle these house prices at these mortgage rates,” he says. “The mortgage payment is just too high for most first-time homebuyers. Trade-up buyers aren’t going to trade up because they’re going to have to get a higher mortgage rate.”

Home prices typically spike in the summer. Larger, more expensive homes go up for sale, and families eager to be settled before the kids start school in the fall compete for them. Plus, there are scores of millennials who are reaching the point in their lives when the idea of homeownership becomes more appealing. But now there still aren’t nearly enough homes for sale, or rent, to go around.

Record-low mortgage rates, which fell into the 2% range last year, allowed buyers to afford higher home prices. The lower rates meant that many monthly mortgage payments remained reasonable, balancing out the extra buyers spent on their properties.

However, mortgage rates have spiked from just about 3% a year ago to the mid-5% range. That’s tacked hundreds of dollars a month onto many mortgage payments. Buyers today are faced with mortgage bills 58% higher than they were just one year ago—when prices were also at record highs—on top of higher inflation, rents, and gas prices. That’s rendered many unable to borrow nearly as much for a home anymore and forced many others out of the market.

“A lot of homeowners are still pricing homes based on the market of six months ago,” says George Ratiu, manager of economic research for Realtor.com. “There is a gap between what homeowners are asking and what they’re getting.”

July 20, 2022

Advice for Renters Priced Out of Home Buying

For many homebuyers, their ownership goal seems to be kicked farther down the field with every price increase and mortgage rate rise.

Today’s housing market can feel like a dream killer. Rising mortgage rates, high home prices and a shortage of properties for sale deliver a one-two-three punch.

If you’ve been knocked out of one too many deals and need a timeout, here’s how to regroup and keep the homeownership dream alive.

Give yourself a break

Given the rise in home prices and interest rates, the monthly mortgage payment for a median-priced single-family home with a 10% down payment has jumped by about $800 since January, according to a June 2022 National Association of Realtors® press release.

That’s huge.

It’s OK to hit pause if you’re frazzled to the point that you can’t think clearly or are simply priced out.

“If it doesn’t feel right to you … step away and give yourself some breathing room,” says Catalina Franco-Cicero, a certified financial planner with Tobias Financial Advisors in Plantation, Florida. “It’s OK to do that.”

But stepping back doesn’t mean giving up.

“One thing we tell people with any goal that you have is that there’s a big difference between ‘no’ and ‘not yet,’” says Nathaniel Moore, a certified financial planner and president of Agape Planning Partners in Fresno, California.

Strengthen your finances

View the break as an opportunity to get your finances in even better shape.

Use a mortgage calculator to estimate a monthly mortgage payment, including estimated property taxes and home insurance. Then add utilities plus 20% of the monthly mortgage for unexpected maintenance and repairs, Moore suggests. Subtract your rent payment from that amount and set aside the rest in a high-yield savings account.

“That way, if and when you can get in the home, you don’t have sticker shock or you’re not house-rich and cash-poor because you didn’t account for the other expenses,” Moore says.

He likens the transition to a relay race. “You want to have a smooth baton handoff, from the ‘renter you’ to the ‘homeowner you.’ If you’re not ready to walk in that house and afford the ancillary costs of living there, that’s when the baton fumbles and drops,” he says. “You want to get to the place where the rental person is running at the same speed as the homeownership person so when the baton is handed off it’s a smooth transition.”

When you’re ready to buy, you can add that extra money you’ve socked away to your down payment, which will help you make stronger offers and may qualify you for better mortgage rates.

“Nobody can truly predict interest rates nor inflation, nor the appreciation rate of homes in a relatively short period of time,” Eric Lefkowitz, president and chief operating officer of Motto Mortgage Mint in San Diego, said via email. “But we can be certain that buyers should be saving for strong down payment options. This will ensure they can get the best available interest rate when the time comes.”

Pay down debt

Paying down credit cards and other debt will improve two measurements: your credit score and your debt-to-income ratio, or DTI. Both are key factors that lenders consider when deciding whether you qualify and at what rate.

A good DTI – the percentage of gross monthly income that goes toward debt – is generally under 36%. The lower the better.

Your credit score is based in part on credit utilization, the percentage of available credit used. Shrinking your debt will lower credit utilization and help your score. Meanwhile, keep making on-time payments to preserve good credit.

“It’s going to give you a better mortgage rate and more options,” says Deb Gillard, a real estate agent with RE/MAX Venture in Owatonna, Minnesota.

Avoid optional big expenses

Resist the temptation to vent your frustration in a spending splurge, whether it’s running up a credit card balance or buying a new car when the old one suffices.

“That’s the last thing you want to do when you’re taking this pause,” Gillard says.

Another enticement may be to move to a nicer apartment. But stay put if you can, advises real estate broker Peggy Pratt, who leads the Pratt Properties Team of Century 21 North East in the Boston area. Paying the security deposit and other moving expenses could cut into savings for a down payment.

Reevaluate your wants and needs

This is a good time to look at the big picture.

“People need to do some soul searching to say, ‘What am I looking for in a home?’” Moore says.

Given home prices and mortgage rates, you may need to adjust your filters. You may need to shop for homes in a different neighborhood or buy something smaller than originally imagined. If the aim is to buy a starter home, build equity and upgrade in a few years, then that flexibility may pay off.

“Homeownership is a step-by-step opportunity,” Lefkowitz said. “You are not committing to stay in a home forever.”

If you could work elsewhere, another option you might consider is relocating to a less-expensive housing market, Franco-Cicero says. That’s a big decision. Taking a pause can give you time to research the quality of life and cost of living in other locations and weigh whether you want to live somewhere else.

Keep in touch with your agent, lender

Besides fine-tuning finances and reevaluating goals, keep in touch with experts you trust who can watch the market and bring you back in when you’re ready, Lefkowitz said. “This includes a strong Realtor and mortgage professional,” he said. “Together, that partnership can keep the buyers’ best interest top of mind and be ready to pounce on an excellent property when it becomes available.”

Let them know if you can make a bigger down payment, for instance. Keep your agent updated on when you might be ready to jump back into the market and the types of homes and areas you’re willing to consider.

Pratt says she counsels clients to maintain realistic expectations and not give up.

“Hang in there,” she says. “Something will come.”

Posted in Buying a Home
July 13, 2022

Real Estate Investing: 8 Things to Avoid

Real estate often make a great investment but investors expect a return on that investment. Seemingly attractive investments can sometimes have problems.

In the early part of the 20th Century, American humorist Will Rogers was quoted as saying, “Buy land. They ain’t making any more of the stuff.”

Real estate can be a wonderful investment, but buying property isn’t as simple as Will Rogers led people to believe. Investing in certain kinds of real estate can be a financial mistake. Let’s consider eight of the worst types of real estate to invest in.

Doesn’t produce income

Drive down any main street in small-town America and you’ll find dozens of empty storefronts available for lease or for sale. Some of these retail spaces have been vacant for years. They may have held thriving businesses at one time – but then the mall opened on the outskirts of town, or the big box store offered cheaper prices. These main street businesses may have survived the mall or Walmart, but they couldn’t see their way through the Great Recession, the competition of online retailers or the shut-downs of COVID-19.

It may be tempting to think, “Look at that store building. The price is so cheap. Let’s buy it and maybe we can sell it in a few years at a nice profit!” But that store building may have been vacant since 1995. If it couldn’t be sold and used then as a retail establishment, what makes you think you’ll be able to sell it at a profit today?

Negative cash flow

Tied in with a lack of income is a negative cash flow for a piece of property that’s for sale. If you wouldn’t buy real estate that doesn’t produce income, why would you buy a property that costs more to maintain than what it brings in? Do you know how to spell M-O-N-E-Y- P-I-T?

Too extravagant

What if the house that you want to buy and then rent out is as fancy as a mansion of the 1%? If a family could afford the monthly rental payment of such a home, why wouldn’t they just buy it for themselves? You don’t want to purchase a house for a rental property that’s as fancy as George Vanderbilt’s Biltmore House (Yes, I’m being sarcastic). Those who could afford the high rent could also afford to purchase their own home. And there you sit with an empty house. And no income.

Too expensive

Just ask any hard-working middle-class American family – it’s no fun having more money going out than what’s coming in. It’s always a good idea to follow the 28% rule – although some call it the 25% rule and others refer to it as the 30% rule. It simply means that a household shouldn’t spend more than 28% (or 25% or 30%) of its gross monthly income on total household expenses.

Housing developments

Throughout the United States there are defunct housing developments that never quite made it. The developers may have even improved the land by adding sewer, water and electrical utilities. They may have even put in curbs and gutters, as well as street pavement. But there are no houses (maybe one or two if they got lucky). There are no businesses. Chances are these developers went bankrupt.

It seems like the majority of such failed developments are located in states like Arkansas, Arizona and New Mexico, but every state has them. Probably the most egregious example of such a failed endeavor was the I-30 Condo Scandal of Garland, Texas (a suburb of Dallas) in the 1980s. If you drove east out of Dallas on I-30 at that time, you undoubtedly passed acres of half-built condominiums and empty cement slabs. The developer, Danny Faulker, ended up in jail with a 20-year sentence, but only served 4 because he suffered from terminal cancer. This debacle helped precipitate the Savings and Loan crisis of the late 1980s and cost taxpayers close to $1 billion.

Real estate purchased only for appreciation

Astute investors who have a pulse on future trends have sometimes made oodles of money by purchasing undeveloped land with the goal of selling it when prices increased. An example of doing this successfully can be found in the area just east of Lake Sammamish in the Seattle area. In the 1970s and earlier, this area from the lake to the Cascades was rural, with few homes and a handful of small towns.

But once Microsoft moved into Redmond, there was a building boom and that area is now filled with exclusive neighborhoods. In 2019, Sammamish, Washington was considered the richest city in America. Those who owned parcels of this undeveloped land prior to the Sammamish building boom came out like bandits.

But there are just as many – or even more – purchasers of undeveloped land who have lost everything. They purchased raw real estate at the wrong place and at the wrong time. Unless you have experience successfully predicting the future growth and development of an area, this is probably an investment strategy to stay away from.

Vacation timeshares

Timeshare property has been around since 1969. The average cost of a timeshare today is $22,942 with an average annual maintenance fee of around $1,000. There’s also the stressful experience of dealing with pushy salesmen or the difficulty of trying to get out of a timeshare contract.

Is all that worth it for a week in a vacation condo? Why not just vacation at a beach hotel, at the time and location that best fits your schedule and your interests?

The nicest house in a neighborhood

You’re shopping for a house to invest in or to live in yourself. A beautiful five-bedroom two-story goes up for sale in a neighborhood of three-bedroom bungalows. Not only does the house have room for a large family, but there’s also a built-in swimming pool in the backyard! The price seems decent for the square footage of the house, but because of its size, it’s more expensive than other homes for sale in the neighborhood.

Such a purchase may be tempting, but think about it – will this property appreciate in value compared to the other homes in the area? Remember, too, that there are no promises the rest of the neighborhood will improve. When the time comes to sell your beautiful five-bedroom two-story with its built-in swimming pool, will potential buyers want to live in a neighborhood of bungalows?

Bottom line

Investing in real estate can be both economically and personally rewarding. It’s important, however, to be aware of the pitfalls, and to understand that there are several types of real estate that you should probably stay away from. Will Rogers was right when he opined about land – “They ain’t making any more of the stuff.” But keep your eyes open and use your head so your purchase can be beneficial to your economic well-being.