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Homeownership increasingly difficult for average Americans: report

March 24th, 2016 admin

NEW YORK (Reuters) – Home prices are rising faster than wages in most of the United States, making homeownership increasingly difficult for average Americans in some of the most populous areas of the country, according to a report released on Thursday.

The report found that home price growth exceeded wage growth in nearly two thirds of the nation’s housing markets so far this year, with urban centers like San Francisco and New York City among the least affordable.

Home prices in 9 percent of the U.S. housing market are now less affordable than their historic norms, the report by RealtyTrac found. Home buyers need to spend more of their incomes on housing, leaving less money for other purchases.

“While the vast majority of housing markets are still affordable by their own historic standards, home prices are floating out of reach for average wage earners in a growing number of U.S. housing markets,” said Daren Blomquist, senior vice president at RealtyTrac, which monitors housing market trends.

RealtyTrac parsed homes sales and income data in 456 U.S. counties with a combined population of 221 million.

The report comes after data showing house flipping, buying and selling a house to make a quick profit in a hot housing market, had risen to record levels in some markets, generating concerns of a price bubble.

While the latest report could fuel those concerns, prices are still far more affordable than during the peak of the housing bubble in 2006. In the first quarter of this year the average wage earner needed to spend a third of their income on monthly mortgage payments compared to more than half in 2006.

In addition, RealtyTrac’s affordability measure, which compares house prices to wages, was above historic norms in 99 percent of housing markets in 2006. After the housing bubble burst that fell to a low of 2 percent in 2012 before rising to its current 9 percent.

Still, prices in highly sought after housing markets leave average wage earners far behind, RealtyTrac said.

For example, to buy a median priced home in various areas of New York City, Brooklyn and Manhattan especially, or in the San Francisco metro area, a buyer needs to spend between 120 percent and 95 percent of the average wage on mortgage payments.

Among populous areas where the growth in house prices outstripped wage growth were Los Angles, Phoenix, and San Diego.

 

 

(Reporting by Edward Krudy; Editing by Daniel Bases and Tom Brown)

These are the cities where rich millennials live

March 17th, 2016 admin

Millennials are giving up on getting rich and more likely to identify as working class than other generations, according to recent research.

Just not all millennials. Lots of young bankers and lawyers and software developers are making big bucks, and they’re especially likely to be your neighbors if you live in Arlington, Va. Aaron Terrazas, an economist at Zillow, compiled a list of the cities in which the most rich millennials live , defining millennials as 22 to 34 years old and “rich” as households earning at least $350,000 a year. His research offers one finding you’d expect and another that’s a little more surprising. 

Tech hubs dominate the list, which makes sense, since San Francisco, Sunnyvale, Calif., Seattle, and Denver are full of software companies that pay high salaries to young workers. Arlington, Va., is slightly less obvious: It’s a well-off inner suburb of Washington, where the median income is $109,000 and 19 percent of households earned at least $200,000 in 2014. Perhaps more importantly, the median home value is a bit more than $600,000, according to Zillow, making it a likely stopping point for Beltway professionals on their way to bigger homes in other suburbs.

More from Bloomberg.com: Fed Scales Back Rate-Rise Forecasts as Global Risks Remain

Huntington Beach, Calif., which once waged a gnarly trademark dispute with Santa Cruz, Calif., over who had the right to the moniker “Surf City,” seems like another outlier. The median income is $85,000, and 12 percent of households earn $200,000 or more. Terrazas points out, though, that Huntington Beach is next door to Newport Beach, home to Pimco and a host of other high-paying financial companies.

Terrazas also created a breakdown of cities in which millennials are more likely to be wealthy than members of their parents’ generation. Of the 73 cities in the Zillow survey, in only 13 was the share of millennials earning at least $350,000 higher than the share of boomer households at the same income threshold. Millennials are most often wealthier than their parents in tech towns and close suburbs of major cities, such as Yonkers, N.Y., or Jersey City, N.J., where well-paid bankers and lawyers and other professionals are likely to live before outgrowing their abodes when they start a family.

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Read These Are the Cities Where Rich Millennials Live on bloomberg.com

First-Time House Hunters Lose in Busy U.S. Homebuying Season

March 16th, 2016 admin

Before beginning the hunt for their first house, Tennessee residents Brittany and Craig Murphy pared their student debt, saved for a down payment and got an income boost from her new job. The major hurdle was what came next.

In the last month, the couple lost two bidding wars on Nashville homes to competitors willing to pay more than 10 percent above the asking price.

“I was not expecting the actual finding of the house to be the difficult part,” said Brittany Murphy, a 26-year-old Web designer whose husband, 27, is a software developer.

Steady job growth, low mortgage rates and record apartment rents are turning millennials like the Murphys into homebuyers — if they can find a house. As the key U.S. spring sales season gets under way, robust real estate demand is being outweighed by a persistent lack of lower-priced supply that’s poised to limit transactions and worsen an affordability crunch for young people. They’re faring worse than purchasers at the higher end of the market, where inventory is piling up.

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Rising interest in home tours indicates prospective buyers are coming out in droves. An index by Redfin that measures requests for property visits rose in the first two months of the year to the highest level since at least 2012, when the data began.

“As soon as a house hits the market, it will be eaten by the huge demand appetite,” said Nela Richardson, Redfin’s chief economist.

Limited Inventory

Surging homebuying interest won’t necessarily translate into a big jump in sales. Prices will rise while limited inventory will put a cap on transactions, said Doug Duncan, chief economist of Fannie Mae. He estimates that U.S. single-family home prices will climb 5 percent this year, about the same as in 2015, while sales will increase 3 percent. That’s a slowdown from 2015, when existing-home purchases jumped 7 percent.

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“Affordability is a challenge this spring,” Duncan said. Prospective buyers “would have gotten their credit in shape and they’ll have a job. But they will be frustrated because, in their market, there simply won’t be affordable homes.”

The shortage is most acute for starter homes. Across the country, inventory was down 8.2 percent in January from a year earlier for properties priced below $250,000, data from the National Association of Realtors show.

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While first-time buyers aren’t necessarily millennials, people age 35 or younger have become housing’s largest segment, accounting for 35 percent of buyers in the 12 months through June 2015, up from 28 percent three years earlier, according to a survey from the trade group released last week.

They’re facing weaker affordability as home prices climb faster than incomes, said Ralph McLaughlin, chief economist of Trulia, a unit of Zillow Group Inc. Starter-home buyers on average now need to devote 38 percent of income to housing costs, up from 32 percent four years ago, he said.

Nashville Demand

In the Nashville area, the median single-family home price in February jumped 14 percent from a year earlier to $235,000, according to the Greater Nashville Association of Realtors.

The Murphys amassed $20,000 for a down payment by moving in with a friend so they could save money, and from the added income of the better-paying job Brittany Murphy got in late September.

So far, they’ve come up short, even though they’ve offered well over the asking price twice. The couple is now the back-up buyer for a home if the winning bidder, who agreed to pay more than $250,000, falls through. The asking price was $225,000, said Scott Cornett, the Murphys’ real estate agent.

“I’m concerned about the current ability of the millennial generation to buy a home,” Trulia’s McLaughlin said. “Right now, inventory pressures are keeping them from doing that.”

Construction Needed

There’s only one way to boost inventory — by building more homes. But homebuilders, seeking larger profit margins, have focused on pricier offerings rather than smaller starter homes. And many homeowners aren’t selling because they owe more than their properties are worth or they can’t afford to trade up.

Construction is picking up. Starts for single-family houses, still anemic by pre-crash standards, rose to an 822,000 annualized rate in February, the most since November 2007, the Commerce Department reported Wednesday.

Starter homes made up 27.7 percent of the market’s inventory through February this year, down from 28.7 percent a year earlier, McLaughlin said. That’s the smallest share for the start of the year since 2012, he said.

Buyers with bigger budgets — or homeowners trading up — have more to choose from. The inventory of properties priced above $250,000 was up 10.9 percent in January, according to the National Association of Realtors. Economic instability from China to South America and the stronger U.S. dollar is dulling demand from foreigners, who tend to purchase higher-end homes.

“Foreign buyers are facing some headwinds,” Scholastica Cororaton, a research economist with the Realtors group, wrote in a blog post on March 7. “On a positive note, the slowdown in demand from foreign buyers may help ease the tightness of supply in the market.”

That’s of little comfort to Jennifer Lan and her husband, Jared Tompkins, who are both physicians finishing residencies in Memphis, Tennessee. They started hunting for their first house near her parents in Potomac, Maryland, last month and have already had to increase their budget to more than $900,000 after seeing what they would get for $800,000.

“I don’t think I’m going to find a bargain,” said Lan, 30. “I’m just hoping to find a home that’s not terribly overpriced.”

Updates with housing starts two paragraphs below Construction Needed subheadline.

More from Bloomberg.com

Read First-Time House Hunters Lose in Busy U.S. Homebuying Season on bloomberg.com

First-Time House Hunters Lose Out in Busy U.S. Homebuying Season

March 16th, 2016 admin

Before beginning the hunt for their first house, Tennessee residents Brittany and Craig Murphy pared their student debt, saved for a down payment and got an income boost from her new job. The major hurdle was what came next.

In the last month, the couple lost two bidding wars on Nashville homes to competitors willing to pay more than 10 percent above the asking price.

“I was not expecting the actual finding of the house to be the difficult part,” said Brittany Murphy, a 26-year-old Web designer whose husband, 27, is a software developer.

Steady job growth, low mortgage rates and record apartment rents are turning millennials like the Murphys into homebuyers — if they can find a house. As the key U.S. spring sales season gets under way, robust real estate demand is being outweighed by a persistent lack of lower-priced supply that’s poised to limit transactions and worsen an affordability crunch for young people. They’re faring worse than purchasers at the higher end of the market, where inventory is piling up.

More from Bloomberg.com: Soros, Alarmed by Trump, Pours Money into 2016 Race

Rising interest in home tours indicates prospective buyers are coming out in droves. An index by Redfin that measures requests for property visits rose in the first two months of the year to the highest level since at least 2012, when the data began.

“As soon as a house hits the market, it will be eaten by the huge demand appetite,” said Nela Richardson, Redfin’s chief economist.

Limited Inventory

Surging homebuying interest won’t necessarily translate into a big jump in sales. Prices will rise while limited inventory will put a cap on transactions, said Doug Duncan, chief economist of Fannie Mae. He estimates that U.S. single-family home prices will climb 5 percent this year, about the same as in 2015, while sales will increase 3 percent. That’s a slowdown from 2015, when existing-home purchases jumped 7 percent.

More from Bloomberg.com: There’s Only One Buyer Keeping S&P 500′s Bull Market Alive

“Affordability is a challenge this spring,” Duncan said. Prospective buyers “would have gotten their credit in shape and they’ll have a job. But they will be frustrated because, in their market, there simply won’t be affordable homes.”

The shortage is most acute for starter homes. Across the country, inventory was down 8.2 percent in January from a year earlier for properties priced below $250,000, data from the National Association of Realtors show.

More from Bloomberg.com: If Oil Prices Have Hit Bottom, the Top May Not Be Too Far Away

While first-time buyers aren’t necessarily millennials, people age 35 or younger have become housing’s largest segment, accounting for 35 percent of buyers in the 12 months through June 2015, up from 28 percent three years earlier, according to a survey from the trade group released last week.

They’re facing weaker affordability as home prices climb faster than incomes, said Ralph McLaughlin, chief economist of Trulia, a unit of Zillow Group Inc. Starter-home buyers on average now need to devote 38 percent of income to housing costs, up from 32 percent four years ago, he said.

Nashville Demand

In the Nashville area, the median single-family home price in February jumped 14 percent from a year earlier to $235,000, according to the Greater Nashville Association of Realtors.

The Murphys amassed $20,000 for a down payment by moving in with a friend so they could save money, and from the added income of the better-paying job Brittany Murphy got in late September.

So far, they’ve come up short, even though they’ve offered well over the asking price twice. The couple is now the back-up buyer for a home if the winning bidder, who agreed to pay more than $250,000, falls through. The asking price was $225,000, said Scott Cornett, the Murphys’ real estate agent.

“I’m concerned about the current ability of the millennial generation to buy a home,” Trulia’s McLaughlin said. “Right now, inventory pressures are keeping them from doing that.”

Construction Needed

There’s only one way to boost inventory — by building more homes. But homebuilders, seeking larger profit margins, have focused on pricier offerings rather than smaller starter homes. And many homeowners aren’t selling because they owe more than their properties are worth or they can’t afford to trade up.

Starter homes made up 27.7 percent of the market’s inventory through February this year, down from 28.7 percent a year earlier, McLaughlin said. That’s the smallest share for the start of the year since 2012, he said.

Buyers with bigger budgets — or homeowners trading up — have more to choose from. The inventory of properties priced above $250,000 was up 10.9 percent in January, according to the National Association of Realtors. Economic instability from China to South America and the stronger U.S. dollar is dulling demand from foreigners, who tend to purchase higher-end homes.

“Foreign buyers are facing some headwinds,” Scholastica Cororaton, a research economist with the Realtors group, wrote in a blog post on March 7. “On a positive note, the slowdown in demand from foreign buyers may help ease the tightness of supply in the market.”

That’s of little comfort to Jennifer Lan and her husband, Jared Tompkins, who are both physicians finishing residencies in Memphis, Tennessee. They started hunting for their first house near her parents in Potomac, Maryland, last month and have already had to increase their budget to more than $900,000 after seeing what they would get for $800,000.

“I don’t think I’m going to find a bargain,” said Lan, 30. “I’m just hoping to find a home that’s not terribly overpriced.”

More from Bloomberg.com

Read First-Time House Hunters Lose Out in Busy U.S. Homebuying Season on bloomberg.com

Hurdles to Multigenerational Living: Kitchens and Visible Second Entrances

March 15th, 2016 admin

For the past five years, home builder Jon Girod has noticed a surge in inquiries from buyers wanting to bring their extended families together on the same property to save money.

He said he gives them a standard disclaimer: Most local governments won’t approve a second kitchen for adults living in separate guest suites. That means no stoves or ovens—only hot plates or microwaves.

The warning scares off many buyers, he said, but experienced ones know that once they move in it is easy to reconfigure the space without drawing attention from local planning officials.

“It’s a cat-and-mouse game,” said Mr. Girod, owner of Quail Homes in Vancouver, Wash. “Quite frankly, the rules are outdated for today’s society.”

A growing number of Americans are living in a household with multiple adult generations as baby boomers look to support older parents as well as boomerang children struggling with student debt and a tough job market. The rub: There is a shortage of homes designed for multigenerational living arrangements.

In all, more than 18% of the U.S. population lives in a multigenerational household, according to a 2014 Pew Research Center study, up from about 15% in 2000. Multigenerational households are defined as those that include at least two adult generations or with a skipped generation such as a grandchild living with a grandparent.

The figures likely would be greater, experts said, if not for the labyrinth of local zoning rules designed to prevent the spread of attached apartments or Airbnb-style room rentals in settings dominated by traditional single-family homes. Local restrictions can run the gamut, from prohibitions on stoves and ovens to steep fees for separate utility hookups.

The restrictions have prompted some builders to offer scaled-down kitchens and dream up alternative names for the forbidden amenities buyers crave. New Home Co. of Aliso Viejo, Calif., calls second kitchens “service bars.” Woodley Architectural Group, based in the Denver area, refers to them as “convenience centers,” while Lennar Corp. calls them “eat-in kitchenettes.”

Despite the workarounds and euphemisms, it can be difficult for families to find workable living arrangements for multiple generations.

Connie Atchley and her wife tried to build a home suitable for three generations—the couple plus Ms. Atchley’s adult daughter and her fiancé, as well as Ms. Atchley’s parents. Ms. Atchley’s goal was to keep everyone together but comfortably apart. Her parents had lived in a separate house, but as they aged she wanted them close by in case of accidents.

Still, separate cooking areas were a must, in part because Ms. Atchley is on a strict gluten-free diet but the rest of her family isn’t. “Cooking is a piece of your independence, like driving,” she said.

Ms. Atchley said she tried two different Oregon towns before getting approval for two kitchens in the city of Monmouth in 2014. All three of the house’s units can be closed off or left completely open.

Eric Olsen, who built the home, said he has missed out on potential sales in recent years because of local code restrictions.

“The rules in place make it so you can’t maximize the potential of figuring out the best solution for a home buyer,” said Mr. Olsen, president of Olsen Design & Development Inc.

Some of the nation’s largest home builders, particularly Lennar, have made multigenerational housing a key part of their marketing campaigns.

But mindful of municipalities’ regulations, companies often take the path of least resistance when designing such homes. Most of Lennar’s homes come with a scaled-down kitchenette for the second unit featuring a convection oven, hot plate or microwave, along with a refrigerator, dishwasher and sink, said Lennar Regional President Jeff Roos, who pioneered the company’s “NextGen” design in Arizona five years ago.

Cities also have asked the company to reconfigure the entrances to second units, Mr. Roos said. Some, such as Glendale, Ariz., asked Lennar to design the houses with only one front entry door, to appear similar to surrounding homes. (The entry to the second unit is inside the home.) Other towns, such as Oro Valley, Ariz., allow second exterior entrances, but they can’t be visible from the street.

“When they were writing the codes, [towns] didn’t really anticipate this,” Mr. Roos said. “Some are proactive right off the bat, and super supportive. And some are still scratching their heads.”

In cities with stricter codes involving second kitchens, officials said they want to distinguish between homes designed for families and those that could be used as rentals. In Gilbert, Ariz., southeast of Phoenix, the town allows “guest quarters” in single-family neighborhoods, as long as there isn’t a second oven or stove.

Homes with a full second kitchen are permitted, but the second units are considered to be potential rentals, requiring separate water and sewer hookup fees that can cost up to $15,000. “We draw the line on what is considered to be a second dwelling unit, and what is considered part of a home,” said Linda Edwards, planning manager for the town of Gilbert.

Even slight tweaks in designs can prompt vastly different reactions from local officials. South of Denver, the master-planned community of Sterling Ranch will feature two multigenerational housing designs as part of a 20-year development plan—one with everyone living under one roof and one that features a separate guest house on the lot with full amenities including a stove.

As part of the zoning plan for the development, each of the guest houses will be considered a separate unit under building codes, requiring an additional $40,000 fee to pay for the infrastructure, said Jim Yates, president of Sterling Ranch Development Co., the site’s master developer. The additional permitting costs will likely limit the number of such designs in the community, said Mr. Yates.

In Davis, Calif., a university town where rents are rising amid a housing crunch, officials have taken the opposite approach. At a new mixed-use development called The Cannery, the city is promoting homes with detached guest units as both an option for multigenerational families and an affordable housing solution.

Davis’s assistant city manager, Mike Webb, said there will be no restrictions on buyers who want to rent out the units to supplement their income, and no additional fees for the second units. Last year the city finalized plans that allow existing homeowners to build guest houses on their properties as a way to increase the housing supply for either renters or family members.

Other towns have reconsidered restrictions after seeing the multigenerational designs firsthand. City officials in Buckeye, Ariz., outside of Phoenix, initially allowed only a kitchenette when Lennar proposed plans in 2014.

But after further discussion, they questioned whether the homes were any different than much larger custom homes in town where two full kitchens were allowed, said Stephen Cleveland, Buckeye’s city manager. Because the homes were under one roof, had one electrical meter and one address, the city concluded two kitchens were fine.

“We need to be responsive to changes in the market, changes in what people want,” Mr. Cleveland said, “so that their quality of life is maximized.”

Write to Chris Kirkham at chris.kirkham@wsj.com

More From The Wall Street Journal

 

The Most Expensive Cities in the World to Live

March 10th, 2016 admin

A stronger dollar has propelled New York and Los Angeles into an annual ranking of the world’s 10 most expensive cities.

Singapore took the top spot in the ranking from the Economist Intelligence Unit for the third straight year, followed by Zurich and Hong Kong.

The survey compares more than 400 individual prices across 160 products and services, and volatile exchange rates have rippled through the survey.

This means that even if the cost of living in, say, New York didn’t rise much for New Yorkers over the past 12 months, the survey will show that New York became more expensive because the dollar strengthened, raising prices of goods and services relative to other countries.

Indeed, New York climbed to No. 7 on the list from No. 22 just one year earlier. It had been far as down as No. 49 in 2011, and it peaked at No. 6 from 2000 through 2002. Compared with New York, 106 cities saw living costs decline last year, while 16 saw a rise in the relative cost of living.

Los Angeles was tied for No. 8 on the list. Other pricey American cities include Chicago (21), Minneapolis (24), Washington, D.C.(26), Houston (31) and San Francisco (34).

Of the 16 U.S. cities surveyed, Cleveland and Atlanta were the least expensive, with a cost of living that is 31% less than New York. On average, New York was about 20% more expensive than other U.S. cities.

While the stronger dollar meant that the relative cost of living rose for most American cities last year, all 28 cities surveyed in Western Europe saw cost of living declines compared with the U.S. In Russia, the collapse of the ruble caused the cost of living in Moscow and St. Petersburg to decline nearly 40%.

A summary of the full survey is available online.

RELATED

The Most Expensive Place in the World to Live (Sept. 22, 2015)

The Most Affordable Place in the U.S. to Raise a Family (Aug. 26, 2015)

No, Washington, D.C., Is Not More Expensive than New York City(Oct. 14, 2014)

The Costs New Homeowners Are Blindsided By

March 8th, 2016 admin

Everyone knows buying a home is expensive — the median sales price of a U.S. home was $278,800 in January, according the Census Bureau — but there’s much more to it than the cost of the house. No matter how much research you’ve done, it’s hard to be totally prepared for every bill.

“It’s definitely a challenge,” said Eric Roberge, a certified financial planner in Boston and founder of Beyond Your Hammock. “That first-time homebuying, it’s really an emotional experience — you’re coming into your own, you kind of feel successful … you tend to just overlook certain things or say, ‘I’m just going to get into the home and figure it out.’”

The overall cost goes beyond saving up for a down payment, finding a property to buy and getting a mortgage. (You’ll need a good credit score to get the best deal on your interest rate too. You can check your credit scores for free each month on Credit.com.)

“People say, ‘I’m going to go into the homebuying process, I’m going to put X% down,’” Roberge said. “That’s only part of the total cost of buying a home.”

Roberge gave an example of a client he had who found a home for $350,000, and they wanted to make a 10% down payment, so they thought they needed $35,000 in cash. In reality, he said, they needed several thousand dollars more than what they’d saved to get through the process.

Here are some examples of expenses new homeowners may not be expecting. Not having enough cash on hand could really strain your housing budget, though strategic use of a personal loan or credit card may help with some of these costs.

1. Fees (Lots of Them)

Mortgages involve a lot of people and a lot of paperwork, and that all costs money. Some fees that drive up the total of your closing costs can include attorney’s fees, application fees, recording fees and appraisal fees.

Cost: Varies, depending on your state & whether you can shop around.

2. Title Insurance

Title insurance protects the buyer from the possibility that the seller or previous sellers didn’t own the property free and clear, therefore didn’t have the right to sell it to you. That would mean you don’t own the house you just bought.

Cost: Varies by state, but is typically 0.5% of the purchase price of the home.

3. Home Warranty

If you’re not buying new, a good home warranty can protect you from unexpected repair bills.

Cost: National average $350 to $500 for a basic warranty and $100 to $300 more for a warranty with extra protection.

4. Moving Expenses

Getting all your stuff from one place to the next can vary widely in cost, depending on how far you’re traveling, how much you have to move and how much help you might have from generous family and friends.

Cost: According to the American Moving and Storage Association, the average cost of an in-state move is $1,170. The average inter-state move costs $5,630.

5. Furniture

If you’re moving into a bigger place, you’ll naturally need to buy the furnishings to fill it. For example, that guest room you got excited about will actually need a bed that you didn’t have in your one-bedroom apartment.

6. Decor

There are also things you may not have needed at your old place that your new home requires, like window treatments or rugs for hardwood floors. At a minimum, you’ll probably want to paint a few walls.

7. Prepaid Expenses

To close on your home, there are some things you need to pay ahead of time, Roberge said. This can include a few months of homeowners insurance and the next quarter’s property taxes.

Cost: For the client buying that $350,000 home in Boston, prepaid expenses added up to about $3,000, Roberge said.

 

Thought that was it? Dream on! Check out the rest of the costs new homeowners are commonly blindsided by on Credit.com.

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Homebuyers in pricey markets are now scared to dream

February 25th, 2016 admin

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Rising home prices in hot housing markets are robbing buyers of a favorite pleasure: looking at pictures of homes they can’t afford. Or at least, that’s one way to read a blog post published today by real estate brokerage Redfin.

Traditionally, buyers browsing online listings have looked at homes that cost more than they are planning to spend, said Redfin. That dynamic has held true in such cities as Philadelphia and Chicago, where prices have remained stable in recent years. But in cities such as San Francisco and Boston, where inventory is scarce and prices have increased sharply, buyers are starting their searches at lower price points.

There are a couple reasons buyers may start their search by aiming high. We all like to look at stainless steel appliances and killer views, whether or not we can afford them. More practically, it’s smart pricing strategy. If you want to spend $300,000 on a house, you might shop for homes that list for $330,000 and make a lower offer. The research looked at nine large U.S. cities to see whether real estate searchers were using that logic. 

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Why would buyers target their search below the local median listing price? Eric Scharnhorst, the Redfin data scientist who compiled the numbers, thinks it’s more likely that buyers are adapting their pricing strategies to hot markets where bidding contests have become the norm. “In a city where you need to compete, you start looking at homes for $280,000 with the exception that you’ll wind up spending $20,000 more,” he said. A simpler theory: In these markets, more people want to buy relatively cheap homes, even though few are available. Whatever the reason, homebuyers in the most competitive markets seem to be abandoning the urge even to peek at the high ceilings, Italian appliances, and outdoor kitchens of their fantasies. 

 

More from Bloomberg.com

Read Homebuyers in Pricey Markets Are Now Scared to Dream on bloomberg.com

Why so many renters aren’t buying homes yet

February 11th, 2016 admin

There is a simple reason why so many renters aren’t buying into the proverbial American Dream of owning a home: They don’t want to.

More than third of non-homeowners surveyed by Bankrate said they don’t want to buy a place, or at least not yet.

The survey found that Americans with higher education and those earning more than $50,000 a year were the most likely to delay buying a home, along with Millennials. Even so, only 4 percent of those surveyed said they never planned on owning a home. Other recent studies that have similarly found that Millennials haven’t sworn off buying a home altogether but feel that financial pressures are preventing them from doing so in the near future.

“It’s not surprising that a lot of Millennials aren’t interested in home ownership yet. Renting allows them more freedom to move,” said Holden Lewis, Bankrate’s senior mortgage analyst.

Middle-aged Americans also say it’s not the lack of desire but rather the lack of means keeping them from homeownership. More than half said they don’t have enough for a down payment or they don’t have a good enough credit score to qualify for a home loan, according to the survey.

Related: The Surprising Problem That’s Holding Back the Housing Market

Three in 10 Hispanics — the group least likely to want to remain renters — reported that their credit was an obstacle to homeownership, the highest level among all demographic groups.

Credit isn’t a problem for those 65 and older. About a quarter in that age group couldn’t afford a down payment, while another 30 percent said they don’t want to own a home yet. Nearly four in 10 seniors offered other reasons for not owning a home, such as health factors, inability to keep up with home maintenance, financial restraints or living in a home for seniors.

Overall, non-homeowners are aiming high for their down-payment plans. More than a third expect to put between 6 percent and 20 percent of the purchase price as a down payment. Thirteen percent plan to contribute 5 percent or less, while a fifth intend to pay more than the traditional 20 percent down.

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How to fund a down payment

January 29th, 2016 admin

More than one-third of respondents in Consumer Reports’ national homeownership survey of more than 1,500 millennials said they didn’t own a home because they hadn’t saved enough for a down payment. They might be surprised to learn that since late 2014, Fannie Mae and Freddie Mac, the quasi-government entities that underwrite at least half of the country’s mortgages, have offered mortgages that require just 3 percent down, a reduction from the 5 percent down required for standard mortgages.

But a small down payment has its drawbacks. Until your home equity reaches 20 percent, you’ll need to pay mortgage insurance—an annual cost of usually 0.5 to 1 percent of the loan’s value, paid monthly—which compensates the lender if you default. (FHA mortgages require mortgage insurance for the duration of the loan.) You’ll also face larger monthly payments. And a large down payment has an edge with sellers because they perceive the mortgage as more likely to be approved.


More on Home Buying and Selling

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• Is It Harder or Easier to Get a Mortgage?
• 10 Tips for Home Buying and Selling


An obvious tactic is to generate more income with a second job or part-time business and dedicate as much as possible to your down payment. But reaching your loan goal may require additional strategies and sources.

• Find a no-interest loan. States, counties, and even municipalities offer low- or no-interest loans—essentially second mortgages—that can be used toward down payment and closing costs. The assistance could even be a grant that doesn’t need repayment. Those programs are often a municipal strategy to make sure educators, first responders, health care workers, and those in other valued professions­­ can afford to live in the community, or to encourage purchases in certain geographic areas. Search to see whether you’re eligible at downpayment­resource.com, which aggregates from about 2,400 programs nationwide. Rob Chrane, the site’s founder, says the loan amount most frequently found on the site is $10,000; each program has its own eligibility terms. In early January we looked for programs in Union County, N.J., not earmarked for specific professions. We found six for a household of four with an annual income of $100,000; at $101,000 there were just two eligible programs.

• Automate savings. Have your tax refund direct-deposited to a down payment fund. Direct deposit a portion of your paycheck, too. Use the Digit app, which analyzes income and spending patterns, and periodically sweeps a few dollars you won’t miss into an FDIC-insured online Digit account. You can later move the money to an online or virtual bank to earn more interest.

• Tap family members. Those capable of such generosity can give up to $14,000 to an unlimited number of people each year and still face no federal gift tax. For example, parents could each give a son and daughter-in-law $14,000; that’s $28,000 per person, or $56,000 total. Parents or grandparents with means also could withdraw $10,000 penalty-free from their IRAs to fund qualified costs related to a first home, including closing, finance, and settlement costs; each member of a couple could receive $10,000. But unless the giver is close to retirement and won’t need the money, it’s better to leave it invested and growing.

• Crowdfund. Of the more than 600 appeals for help with down payments we viewed recently on the free crowdfunding site GoFundMe, the most remunerative requests involved a family facing hard times or a catastrophe. But one relatively successful appeal that didn’t focus on tragedy was “Need closing $$ for baby’s new home,” by a mother in Euclid, Ohio. She posted an engaging selfie in front of her modest dream house and wrote about working two jobs, bargaining with the seller, and exhausting her savings. In four months she raised $510 of her $1,100 goal.

• Withdraw Roth savings. If you must use retirement savings, withdraw funds first from a Roth IRA. As with gifts from relatives, first-time home buyers can withdraw up to $10,000 from their own Roth or traditional IRAs without penalty for qualified home-buying costs. But such withdrawals from a Roth that has been in place for five years or longer aren’t subject to federal income tax.

• Borrow from your 401(k). The IRS says certain 401(k) plans can let participants borrow $50,000 or up to half of savings—whichever is smaller—from the vested portion of their accounts. Home buyers can stretch out that loan to as long as 30 years. Pluses: A 401(k) loan doesn’t count toward your debt-to-income ratio because it’s secured, usually by your account balance, and you pay the interest to yourself, not a bank. Your 401(k) loan won’t be reflected on credit reports.

But the gambit has risks, and costs. Repayment must be made with post-tax dollars. At retirement, you’ll pay ordinary income tax on distributions, including what you borrowed and repaid. So you’ll be taxed twice on the borrowed sum.

Remember that your borrowings won’t grow along with the rest of your 401(k). The long-term cost of not having that money invested—known as the opportunity cost—can be significant. For instance, a 35-year-old paying back $30,000 over 15 years would have $70,538 less in his 401(k) at age 70 than if he hadn’t borrowed, estimates Michael Chadwick, a financial adviser in Unionville and Torrington, Conn., and Manlius, N.Y. He calculated the historical return of a balanced portfolio of 8 percent, at a 15 percent marginal income tax bracket and a 4 percent interest rate on the loan paid back to oneself. 


Should Parents Play Mortgage Banker?

If you have the resources to help a son or daughter buy a home, you might consider lending all or part of a mortgage, or the down payment. Intrafamily loans, as they are called, can benefit both sides financially. If you loaned your child money at, say, 3.5 percent, you’d get a return exceeding the 2.25 percent that a diversified bond portfolio currently yields. Your child would get an interest rate lower than the national average of around 4 percent that banks are now offering for 30-year fixed mortgages.

What’s more, such loans usually don’t have loan-origination fees, points, mortgage insurance, or other, onerous lender costs. And families can arrange for flexible repayment schedules. Just be aware that the deals must be crafted carefully to avoid IRS scrutiny—and family acrimony.

Mind the Taxes: You’ll need to ensure that any loan higher than $14,000 is not construed as a gift, subject to the hefty federal gift tax of up to 40 percent. So set the interest rate at least as high as the IRS monthly Applicable Federal Rate (AFR), currently about 2.5 percent for long-term loans. You can find the AFR easily at the National Family Mortgage, a service that helps create intrafamily loans. Second, have an attorney draft a detailed promissory note and record it properly under state and local laws. That way, your child can claim a mortgage interest deduction. You will have to claim the interest portion of the mortgage payments paid to you as income on your tax returns.

Avoid a Family Flare-Up: Before you draft the paperwork, make sure all interested parties communicate fully, stresses ReKeithen Miller, a Certified Financial Planner at Palisades Hudson Financial Group in Atlanta. A common scenario he has seen is when a parent discusses the loan terms with an offspring yet fails to include his or her spouse in the conversation. Then when the informed parent dies, the adult child insists that the deceased parent forgave the loan. “Now mom has to decide if her child is telling the truth,” Miller warns. He suggests using caution with such arrangements. “I generally advise clients that they probably shouldn’t loan any amount of money they can’t stand to lose,” he says. 

Editor’s Note: This article also appeared in the March 2016 issue of Consumer Reports magazine.

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