Affordability Struggle For First Time Buyers…

Explaining The Affordability Struggle for First-Time-Home-Buyers

In the latest edition of CoreLogic's Market Pulse the company's senior economist Mark Fleming provides adifferent take on housing affordability which he says economists are predicting will experience a "shock" in 2014.  There is a degree of uniformity in their predictions, he says, that rising rates, increasing house prices and stagnant incomes will soon herald the demise of the era of affordable housing. 

While Fleming does not argue with the basic premise he disagrees with the view that that news is "shocking."  "As I often point out with most housing statistics today," he says, "it is less important to focus on the fact that housing affordability is declining, but rather where it stands relative to historically normal levels."  But beyond the historical, Fleming also argues that affordability is actually proceeding along two different tracks, one for existing homeowners and another for those looking to buy their first home.

Using the same methodology as the National Association of Realtors® (NAR) and assuming a 20 percent downpayment and a 25-percent qualifying ratio Fleming constructed his own affordability index.  Using this he says national affordability was down 17 percent from the previous October and 22 percent from its peak in January 2013.  These declines are the result of an 11 percent appreciation in the CoreLogic Home Price Index (HPI) and a 100 basis point rise in interest rates.  Yet CoreLogic's affordability measure is 35 percent higherthan in 2000 when mortgage interest rates were 8 percent and home prices were rising more modestly.  So Fleming says, though clearly less accessible than a year ago, housing remains affordable in the current market."

But that analysis misses an important point.  While affordability can vary by market is also varies dramatically depending on whether you are a homeowner or not because homeowners capture price increases in the form of equity.  Thus affordability for the first time buyer is a measure of his income, the interest rates, and the price of homes; a homeowner's affordability level is functionally unchanged by increases in the latter.

The chart, which is based on a 5 percent downpayment, shows that during the period of 2003 to 2007, declining interest rates improved affordability for existing homeowners but that advantage for first time buyers was more than offset by rising home prices and housing reached its least-affordable level in 2006.  Then in 2007 the recession took hold, interest rates began their fall to historic levels, and home prices also declined dramatically, costing existing homeowners their equity but improving affordability for first-time homeowners, putting the two groups on near equal footing by the end of 2010.

Fleming said that homeowners have disproportionately lost affordability again over the last two years; down 17 percent for that group compared to 6 percent for existing homeowners.  And while first time buyers will still find affordability 35 percent higher than in the early 2000s, affordability for existing homeowners is almost 100 percent above the average back then as modest income gains have compounded and rates are still extremely low. 

Context and ownership clearly matter Fleming says.  "Will a further rate rise and increasing prices in 2014 eventually make housing unaffordable?  That will depend, but one thing is clear:  First-time homebuyers will be more significantly impacted."

Best Regards, Chris Mesunas

 

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10 of the most affordable cities to purchase a home…

Top 10 cities people are moving to

Whether it's the warm weather, jobs or cheap cost of living, these are the top 10 cities Americans are moving to, according Penske Truck Rental's annual list.

 

Atlanta

  • Median income: $66,300
  • Median home price: $166,000
  • Home price growth forecast : 5.3%

Even though it was hit hard by the recession, Atlanta has claimed the top spot on Penske's list for four years running. Home to Coca-Cola, Home Depot and roughly a dozen other Fortune 500 companies, the city offers a range of job opportunities. And the cost of living is pretty cheap — less than half the cost of Manhattan — with much warmer weather (well… except for this winter).

Tampa, Fla.

  • Median income: $56,800
  • Median home price: $129,000
  • Home price growth forecast : 6.5%

Beaches, boating and baseball are among some of the top reasons people come to Tampa, which is a newcomer to the top cities list. Several Major League Baseball teams come here for Spring training and MacDill Air Force Base has long been one of the biggest employers in the area…

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Rental Property Depreciation…

Tax Savings: Rental Property Depreciation Explained AUTHOR:

One reason you might consider investing in rental properties is to save money on federal income taxes. While this may be true, you should fully understand how rental properties and taxes work in order to determine whether you will save money from your rental property ownership.

If you’re already an investment property owner or are thinking about becoming a landlord, here’s a refresher on how the depreciation expense could help you maximize your tax savings.

The basics

In doing your annual 1040 federal income tax return, you’ll record your rent and all expenses on a Schedule E form. The net amount of gain or (loss) is then recorded on your 1040 form and can shield your income from taxes if you had a loss. One of the bigger expenses on most rental property owners’ Schedule E is something called depreciation. Here’s how it works.

When you own property, each year you write off costs for money you expend where the cost is a one-year expense, such as gardening, general maintenance, repairs and HOA fees. But what if the cost is for an improvement such as a new kitchen or new sidewalks? Because those costs have a useful life beyond one year, you must “capitalize” and depreciate those costs. That means you divide the total cost by the useful life of the improvement, and write off 1/nth of the cost per year. For example, you do $15,000 worth of driveway and sidewalks, with a 15-year useful life, so you can write off $1,000 per year ($15,000 divided by 15 years).

The biggest capital asset of any property is the actual purchase of the house. When you buy a rental property and will own it for longer than one year, you can depreciate the structure. First you must divide the purchase price of the property between the land and the building. You can use your tax assessor’s estimate of the cost of each of those components, an appraisal or an insurance agent’s estimate of the cost of the building. Either way, you can only depreciate the building, as theoretically the land portion of your purchase price is not “used” up and cannot be depreciated.

Crunching the numbers

Here’s an example: Let’s say you buy a single-family home for $200,000. The tax assessor’s estimate of the land value is $75,000, and the building value estimate is $125,000. Your depreciation expense that you take each year against rental income would be $125,000 divided by the IRS allowed 27.5 years of useful life (residential real estate) for a depreciation expense each year of $4,545. So thanks to that depreciation expense, you are saving (assuming you can use passive activity losses) $4,545 multiplied by your marginal tax rate (which is a topic for another day). This could be tax savings from $1,000 to $2,000 per year, just for the depreciation amount.

The calculation and write-off are pretty straightforward, but the actual tax savings amount gets a little more complicated. Many people flub this calculation from the start, so it’s best to find a licensed tax professional and start saving some money going forward.

 

Assuming a Home Loan…

Real Estate Q&A: Is Assuming a Home Loan a Good Idea? Do I Need More Than One Title Insurance Policy?

Don’t Blame Tech Industry For High Home Prices…

Don't blame tech industry for tech hubs' high home prices

By:  | CNBC Real Estate Reporter
 

Housing in tech hubs is expensive. Just ask anyone in California. Home prices are in fact 82 percent higher in tech hubs than in other large metros, according to a report from Trulia. What is surprising, however, is that technology may not have contributed to that huge disparity, at least according to Trulia's chief economist Jed Kolko, who sifted through Census data to make his arguments.

"Housing in tech hubs was expensive even before the modern Internet era," noted Kolko. "In 1990, median price per square foot was 52 percent higher in tech hubs than in other large metros."

Powerfocusfotografie | Flickr | Getty Images
Victorian houses with San Francisco skyline.

So the tech industry didn't push prices higher. It was drawn to places that were already expensive. This may have been because these areas had major research universities, technically skilled workers, computer manufacturing industries or nice climates. Kolko points out that the year-over-year increase in home prices in tech hubs is actually in line with, not ahead of, the national trend; that is, after one accounts for the local severity of the housing bust.

Looking 10 tech hubs—San Francisco, Oakland, San Diego and San Jose, Calif.; Seattle; Middlesex County, Mass.; Raleigh, N.C.; Bethesda, Md.; Austin, Texas; and Washington, D.C.—the average price gain in 2013 was 13.4 percent from 2012. Compare that to an 11.4 percent gain for the 90 other large metros. The gap, Kolko argued, has to do with fact that tech hubs had steeper price declines during the housing crash but have fewer homes stuck in foreclosure today. If you adjust for that, the gap disappears.

(Read moreAll-cash offers crushing first-time homebuyers)

Still, there has been growing animosity, in San Francisco especially, that the influx of workers from Google has made the city increasingly unaffordable. Affordability actually varies pretty widely among the top 10 tech hubs. Just 14 percent of homes in San Francisco are considered affordable (based on median metro household income) compared with 60 percent in Raleigh, Bethesda and Washington, notes the Trulia report.

The reason San Francisco is so expensive may not be the high-paid tech workers, but a far more old-fashioned scenario: too little supply amid high demand.

(Read moreCold weather puts chill on home sales)

"Since 1990, there have been just 117 new housing units permitted per 1,000 housing units that existed in 1990 in San Francisco," Kolko said. "That's the lowest of the 10 tech hubs and among the lowest of all the 100 largest metros, even with the recent San Francisco construction boom."

Other tech hubs, like Raleigh and Austin, have 10 and eight times as much construction, respectively. The Bay Area's tough geography and regulatory environment have pushed development prices higher, limiting construction.

 

Micro-apartments on the rise in big cities…

Micro-apartments offer slight relief for San Francisco residents

 

 

Sacramento County Relaxes Affordable Housing Requirements.

Sacramento County relaxes affordable housing requirements

 

 

Become A Smart Seller…

3 Tips for Being a Smart Seller in 2014

 

For the past five years or so, millions of homeowners have been stuck in their homes, unable to refinance or sell because they were underwater. That situation began to change in 2013 when the housing market finally began to show signs of life. Buyers across the country were back in the game and home prices rose in many communities.

For many sellers this meant they could finally move out of a small house, cut down on their commute time, or simply go on with their lives. Almost 2 million homeowners came out from negative equity positions in 2013.

If you plan to sell your home in 2014, be aware that buyers have changed since the economic downturn. They’re savvier than ever, and they’re not desperate. Many of today’s buyers are Millennials (also known as Generation Y) who’ve come of age with access to endless information via the Internet. It’s in their DNA to search, and they love photographs and sharing.

Here are three bits of advice that will make you a smart seller in 2014:

Take your photo shoot seriously

Today, many buyers get their first impression of your home online. Too often, listings go online with photos of a dark room, lights off or blinds closed. Even worse? A new listing without photos or that has only one. If your real agent isn’t hiring a professional photographer to take high resolution photos, then you should invest the few hundred dollars to do so. Have them taken at the best time of day. Clean the home in advance and put away clutter. Prepare for the photo shoot just as you would for an open house. If buyers don’t like what they see online, you may never get them in the door.

Have your home inspected before listing 

Nothing is worse than waiting months or even years for an offer, only to have potential buyers discover that your HVAC system is on the fritz or that there is dry rot. When that happens, you’re forced to reduce the price or give credits.

Even worse, you may scare off the buyer and be forced to go back on the market. Often when this occurs, buyers and agents think there’s a problem with your property—which can make it tough to sell. That’s why a few hundred dollars on a pre-sales inspection is the best investment you can make. If there are issues, you can price the home accordingly. More importantly, you’re providing the buyers with more information. You’ll be in their good graces from the start.

Throw buyers a bone

Receive an offer on your home at a good price? Have you been one of the lucky ones who received more than one offer over a short period of time? Good for you; you’re in the driver’s seat. Even so, you still want to be in the buyer’s good graces during escrow and even after the sale. If you have the opportunity, throw the buyer a bone. If they ask for an early closing and you can do it, give it to them. Negotiate to buy them a one-year home warranty or give them a small credit. These little offerings will go a long way toward a speedy and hassle-free escrow.

The most important thing to remember is that to be a smart seller, you need to put yourself in the buyer’s shoes. Remember that today’s buyers lived through one of the biggest housing and credit crises in generations. They’re motivated but cautious, and they have a wealth of information available to them online. Don’t take anything for granted.

 

Why Customer Service is Important For Your Business…

Why Customer Service is So Important for your Real Estate Business

by TRACY ROYCE

If you’ve ever seen the movie Glen Gary Glen Ross, you’d see a strong precedence of how the public thinks of real estate professionals.

Pushy, two-faced, actors who treat their customers like idiotic pawns.

As the profession has evolved, some of that imagery has stuck, and includes the investor as well. Though there’s nothing wrong with an assertive sales style, the landscape of the entire business has shifted quite mightily. Busts have bled out the bottom-feeders, and those left or coming into the business will have to continuously strive for a customer-service based agenda. The world has grown and will continue to get smaller through the availability of instant information. Embracing the change will be inevitable, possibly critical to your business. Here’s why:

1) Customers Have More Options

The information age has nearly obliterated the old-school style of networking. If someone is looking to sell, buy, wholesale, or short sale, looking for qualified professionals in their area is a point and click away. Given, those who have been marketing to (that) segment may have a shoe-in, but often times prospects will be talking to 2-3 other people they think may be able to assist their situation.

You may have taken months to develop a relationship of sorts with a prospect, but if a better option comes along for them, they can be gone in an instant. If you were able to find them, in all probability, so were other competitors. The information is so readily available that you need to have a plan in place to attract and close customers in a timely manner, softly reminding them constantly of all the benefits you offer.

It’s not about you, it’s about them.

No matter how many degrees you have, houses you’ve closed, funds you’ve issued, etc, the customer only cares what’s in it for them. Treat them like you KNOW they have options, you’re grateful for the opportunity to earn their business, and if they choose you they’d have a wonderful experience with you and your company. Reflect that in your marketing, conversation, and closing pitch.

2) You’re Easier to Research

On the tail of the last point comes the fact, you’re easier to find out about these days.

If there’s not much to see about you online, or otherwise, that may be a turn-off for customers, as well. Even if it’s a Facebook Business Page, it’s important you have something.

If you haven’t already, for God’s sake, put up a web page. It doesn’t have to be fancy, but it is the bare minimum online store front for your business. Brandon Turner wrote a wonderful article on this very subject, if you’re still intimidated by the idea.

Secondly, Google yourself and see what comes up. Most likely, your LinkedIn profile, various social network profiles, and any articles that contained your name will come up. Check for reviews, feedback, customer service complaints, and things of these nature. A buzz, for better or worse, may have started about you online, and it’s important you monitor what’s being said. It will and can attract and detract future customers.

Don’t have a buzz, yet? Ask previous customers to write reviews on Yelp, Google Places, or even a simple email so you can post the testimonial online. You may promise the world to prospects, and be able to deliver, but people flock to the internet to check you out and read reviews about you to make their purchasing decision. Give them something to latch on to. Even if there’s negative feedback, address it in a professional manner and leave it up. All business’ face criticism or unpleasant customers, and it can be a wonderful example of how you handle conflict.

Realtor.com recently shut down an experimental algorithm-based tool that would ideally match up a customer with the perfect real estate agent for them, based on amount of sales, listing days on market, and other public data. This performance-based tool, AgentMatch, excludes information that can’t be found online, like off-market deals, or interpret between the lines of numerics. It has agents in an uproar, but, there is a gap missing for customers to get a full overview of their real estate professionals’ performance and capabilities. Point being, big data may be forming an opinion of you in the near future, so beat them to the punch to showcase your talents, satisfied customer base, and volume.

Got the time and customer base? Take a small camera and record 30-60 second testimonials from prior and current customers and post them on your website, social networks, etc. Videos go a long way for making an impression, so make it a goal in 2014 to at least post a handful of video testimonials to vouch for your company.

Conclusion

If you’ve ever worked in a restaurant, or similar customer-based environment, it’s much easier to understand the idea of a “customer-first” mentality. Practicing and perfecting a confident sales style, backed with a top-notch customer service from you and your staff, will go a long way as the internet continues to sandwich your efforts with reviews, feedback, and exposure. What do you think?

Sacramento County Home Prices Remain Steady…

Sacramento County's median home price remains steady