While there is a lot of advice about keeping Realtors safe during open houses and showings, experts say home sellers should also be given safety tips if opening their homes to strangers.
For example, agents should encourage sellers to conceal valuables, prescription medications, alcohol, bank statements and other personal documents. They also should emphasize that anyone wishing to view the property must make an appointment with the listing agent, since anyone “just dropping by” unannounced may have ulterior motives.
Clients should be advised to remove pets from the home during showings too, to avoid any legal liability if a buyer or agent – strangers in the home as far as an animal are concerned – is attacked.
Sellers should also be wary if a large number of visitors arrive at the end of a scheduled open house – some could try to distract the agent as the others move through the home in search of valuables.
Realtors should make sure that all doors and windows are locked before leaving an open house or showing to prevent thieves from returning once they’re gone, and clients should be urged to check that doors are locked and valuables are in place as soon as they return home.
Source: Maryland Realtor (09/01/2010) Vol. 44, No. 5, P. 10
Source: INFORMATION, INC. Bethesda, MD
Thursday, September 9, 2010
Housing regulator prepares changes for reverse mortgages
The Federal Housing Administration isn’t talking publicly about it, but the agency may be getting ready to lessen the upfront costs of reverse mortgages for some borrowers.
The agency also, however, may be reducing the amount seniors can borrow from their homes.
In a recent conference call with industry participants, FHA officials said they were finalizing plans to offer a home-equity conversion mortgage with almost no upfront mortgage insurance premium attached, according to the National Reverse Mortgage Lenders Association. The FHA also may tinker with the traditional product in a way that increases the overall borrowing costs.
“HUD is looking at options to provide a lower-priced (home-equity conversion mortgage) option,” said Lemar Wooley, a spokesman for the U.S. Department of Housing and Urban Development. “We are still working out the details. Our basic plan is to make the product more attractive, while limiting FHA’s exposure to risk.”
A home-equity conversion mortgage is a federally guaranteed reverse mortgage designed to let homeowners 62 or older tap into the equity in their homes. The loans and accrued interest don’t have to be repaid until the owner sells the home, dies or fails to live there for one year, but the loans have traditionally carried significant upfront and annual expenses.
According to participants on the conference call, home-equity conversion mortgages would be split into two products this fall: a “standard” loan and a “saver” loan.
The saver loan would have an upfront mortgage insurance premium of 0.01 percent of a home’s value, but the amount of funds that could be borrowed, known as the principal limit, would be reduced by at least 10 percent, lowering the risk to the FHA, which guarantees the loans. Because a smaller amount could be borrowed, the saver loan could be marketed as an alternative to a home equity line of credit to seniors on fixed incomes who can’t make the monthly minimum interest payments required on such lines of credit.
Under the standard loan, the upfront mortgage insurance premium charged by the FHA would remain 2 percent of the property value (or a max of 2 percent of the FHA maximum loan limit of $625,500), and the principal limit would be cut by 1 to 5 percent of a home’s value, depending on the borrower’s age. The upfront mortgage insurance premium would remain 2 percent, said industry participants briefed on the plan.
For both loans, the monthly mortgage insurance premium, which is 0.5 percent of the mortgage balance for a traditional home equity conversion mortgage, would increase to 1.25 percent.
“For someone who needs a chunk of money, but not a huge chunk, we believe this will significantly broaden the appeal,” said Peter Bell, president of the National Reverse Mortgage Lenders Association. “They’re very smart changes.”
In the past few months, several reverse mortgage lenders decreased origination fees and closing costs, partly in a bid to increase demand for the product and partly to pass along some of the profit they’ve made as investors scooped up the loans on the secondary market. The saver product would further reduce the upfront borrowing costs.
The National Council on Aging, which has advocated the development of a more flexible reverse mortgage product for some time, views the coming changes as welcome news that the industry is moving past the one-size-fits-all mentality.
However, the advocacy group also sees potential pitfalls.
“The more flexibility there is, the more chance there is to be talked into (something) that doesn’t make sense,” said Barbara Stucki, vice president of home-equity initiatives for the National Council on Aging.
In the past year, consumer advocates have voiced concerns about the marketing techniques used to tout reverse mortgages to seniors, a potentially vulnerable class of consumers.
Beginning Sept. 11, consumers interested in a home-equity conversion mortgage will have to undergo expanded counseling to better understand their options. Stucki urges seniors to take full advantage of those expanded counseling efforts.
“Go talk to a counselor before you talk with a lender,” she said. “Don’t wait until you’ve talked with a lender and been talked into something. This counseling is something that can be an extraordinary teachable moment.”
Source: 2010 Chicago Tribune
The agency also, however, may be reducing the amount seniors can borrow from their homes.
In a recent conference call with industry participants, FHA officials said they were finalizing plans to offer a home-equity conversion mortgage with almost no upfront mortgage insurance premium attached, according to the National Reverse Mortgage Lenders Association. The FHA also may tinker with the traditional product in a way that increases the overall borrowing costs.
“HUD is looking at options to provide a lower-priced (home-equity conversion mortgage) option,” said Lemar Wooley, a spokesman for the U.S. Department of Housing and Urban Development. “We are still working out the details. Our basic plan is to make the product more attractive, while limiting FHA’s exposure to risk.”
A home-equity conversion mortgage is a federally guaranteed reverse mortgage designed to let homeowners 62 or older tap into the equity in their homes. The loans and accrued interest don’t have to be repaid until the owner sells the home, dies or fails to live there for one year, but the loans have traditionally carried significant upfront and annual expenses.
According to participants on the conference call, home-equity conversion mortgages would be split into two products this fall: a “standard” loan and a “saver” loan.
The saver loan would have an upfront mortgage insurance premium of 0.01 percent of a home’s value, but the amount of funds that could be borrowed, known as the principal limit, would be reduced by at least 10 percent, lowering the risk to the FHA, which guarantees the loans. Because a smaller amount could be borrowed, the saver loan could be marketed as an alternative to a home equity line of credit to seniors on fixed incomes who can’t make the monthly minimum interest payments required on such lines of credit.
Under the standard loan, the upfront mortgage insurance premium charged by the FHA would remain 2 percent of the property value (or a max of 2 percent of the FHA maximum loan limit of $625,500), and the principal limit would be cut by 1 to 5 percent of a home’s value, depending on the borrower’s age. The upfront mortgage insurance premium would remain 2 percent, said industry participants briefed on the plan.
For both loans, the monthly mortgage insurance premium, which is 0.5 percent of the mortgage balance for a traditional home equity conversion mortgage, would increase to 1.25 percent.
“For someone who needs a chunk of money, but not a huge chunk, we believe this will significantly broaden the appeal,” said Peter Bell, president of the National Reverse Mortgage Lenders Association. “They’re very smart changes.”
In the past few months, several reverse mortgage lenders decreased origination fees and closing costs, partly in a bid to increase demand for the product and partly to pass along some of the profit they’ve made as investors scooped up the loans on the secondary market. The saver product would further reduce the upfront borrowing costs.
The National Council on Aging, which has advocated the development of a more flexible reverse mortgage product for some time, views the coming changes as welcome news that the industry is moving past the one-size-fits-all mentality.
However, the advocacy group also sees potential pitfalls.
“The more flexibility there is, the more chance there is to be talked into (something) that doesn’t make sense,” said Barbara Stucki, vice president of home-equity initiatives for the National Council on Aging.
In the past year, consumer advocates have voiced concerns about the marketing techniques used to tout reverse mortgages to seniors, a potentially vulnerable class of consumers.
Beginning Sept. 11, consumers interested in a home-equity conversion mortgage will have to undergo expanded counseling to better understand their options. Stucki urges seniors to take full advantage of those expanded counseling efforts.
“Go talk to a counselor before you talk with a lender,” she said. “Don’t wait until you’ve talked with a lender and been talked into something. This counseling is something that can be an extraordinary teachable moment.”
Source: 2010 Chicago Tribune
4 things to consider before remodeling
Home remodeling is on the rise. And no wonder. Owners having trouble selling their homes in this sluggish real estate market want to give them as much buyer appeal as they can afford.
Others are deciding that if they can’t move, they might as well make the most of the house they may be calling home for a long time.
After a year of decline in home remodeling, the number of homeowners saying they plan to remodel in the next 12 months increased from last year, according to RemodelOrMove.com, a website that provides homeowners remodeling options and has conducted semiannual surveys of owners since 2005.
Carol and Mark Durgin have owned a Cape Cod home in Marshfield, Mass., for about 15 years. Even though their son is grown and no longer lives with them, they thought the home was too small. Rather than try to sell it and buy a larger home, they decided to add a full basement.
They didn’t do much research before they launched into the project in June 2009.
“My husband just said he wanted to do it, and I said that I was on board,” says Carol, who owns a beauty salon in Quincy.
The new basement, which is nearly finished, has a second bathroom, a laundry room and a family room with a pool table. Mark, who works for the local laborers’ union, did much of the interior work.
It took longer and cost more than they expected. They had to fix up their yard after the construction turned it into a mud pit. But they are happy with the results. “It’s wonderful,” Carol says.
In tough economic times, it’s important to make smart decisions. Here’s what to consider before you pick up a hammer:
1 – The biggest bang for your buck
Before you even come up with a plan, consider how long you will live in the home. If you only plan to stay for several years, you may not be able to earn back the cost of a major renovation. Short-term owners should consider simple cosmetics, such as refinishing floors, painting and updating fixtures and lighting. “They are little things that don’t cost much but can really update a room,” says David Lupberger, home-improvement expert with ServiceMagic.com, a website that connects homeowners to prescreened contractors.
If you plan to stay in the home for five years or longer, then a kitchen or bathroom renovation provides the best return on your investment.
“Owners can enjoy a nice modern kitchen and bathroom,” says Elizabeth Blakeslee, associate broker at Coldwell Banker Residential Brokerage in Washington, D.C. “Down the road if they want to sell the home, they’re in good shape, because it’s kitchens and bathrooms that sell homes.”
One of the biggest mistakes that people make is to install a new pool in parts of the country where the weather is colder, she says. In general, renovating should bring a property up to the value of the comparable houses nearby.
“But you don’t want to over-improve it and have the most expensive home on the block,” says Ben Woolsey, director of marketing and consumer research at CreditCards.com. “A good rule of thumb is that you shouldn’t try to improve the value of your home more than 25 percent of its current value.”
2 – Financing the project
Before you start renovating, estimate the cost and decide how you will pay for it.
The Durgins are happy with their lender’s advice. When they applied for a home-equity line of credit, he suggested a higher limit than they asked for. They wouldn’t have to use all of it, but they’d have a cushion if they’d underestimated their cost.
They originally thought they would need about $40,000. But they decided to ask for a $75,000 line of credit, and they ended up using $62,000.
Borrowing is not the only way to finance a remodeling job.
If your project is inexpensive and you have adequate savings, tapping them is the easiest way to go. Many use their credit cards for projects under a few thousand dollars.
Owners can finance a kitchen or bath renovation or add a deck that way. If you hire a contractor for a bigger project, the costs can balloon. Then you may be better off with a personal loan, a home-equity loan or line of credit.
Sharp declines in home values mean many owners have no equity to tap. For those who do, financing home improvements with a home-equity loan makes sense because the interest is tax-deductible, Woolsey says.
3 – Are you covered?
Before you start a project, make sure the contractor and subcontractors have adequate insurance coverage. Ask if the contractor has workers’ compensation, which covers lost wages and pays for medical and rehabilitation expenses if workers are injured. If not, an injured worker can sue you, says the Insurance Information Institute.
If you are adding an extra room, you will need to increase your home insurance coverage. Don’t wait until the renovation is completed to contact your insurance agent. If the addition is damaged or destroyed before insurance coverage has been increased, you may be responsible for the cost of repairing or rebuilding it, says Loretta Worters, vice president of the Insurance Information Institute.
Homeowners also should visit DisasterSafety.org, where the Institute for Business & Home Safety provides info about each state’s building codes and standards. It’s where homeowners can find out how to be sure contractors make their homes hurricane- or wildfire-resistant.
And during the renovation keep all of the receipts for items purchased, such as furniture and electronics, because you will want to make sure you have the right amount of coverage for personal possessions.
4 – Ways to save money
Kitchens and bathrooms are the most popular renovation projects. But don’t overlook less-visible improvements that may cut the costs of owning a house.
Updating old plumbing and electrical wiring and disaster proofing your roof may lower your insurance premiums.
Owners of older homes can reduce their energy bills by adding insulation and installing new windows. Federal and state tax credits for certain improvements – such as energy-efficient central air conditioning, heating or water heaters – can lower your costs even more.
In the end, a renovation project’s payoff may be measured best by how much satisfaction it gives the homeowners.
Newlyweds Keith and Julianne Knapp encountered many difficulties buying their house, a fixer-upper in the Cincinnati area that they eventually landed when it was sold in foreclosure for $168,000. Keith moved in before the wedding in July and started replacing ceilings and painting rooms. They have since added new fixtures and appliances, new carpeting and landscaping.
“Our neighbors tell us that they can’t believe that it’s the same house,” Keith says.
Their cost: about $10,000, paid out of savings, wedding-gift cash and a personal line of credit.
Now it’s the home where they plan to start a family. Says Keith, “We had a house-hunting nightmare with a storybook ending.”
Source: USA TODAY, a division of Gannett Co. Inc., Christine Dugas
Others are deciding that if they can’t move, they might as well make the most of the house they may be calling home for a long time.
After a year of decline in home remodeling, the number of homeowners saying they plan to remodel in the next 12 months increased from last year, according to RemodelOrMove.com, a website that provides homeowners remodeling options and has conducted semiannual surveys of owners since 2005.
Carol and Mark Durgin have owned a Cape Cod home in Marshfield, Mass., for about 15 years. Even though their son is grown and no longer lives with them, they thought the home was too small. Rather than try to sell it and buy a larger home, they decided to add a full basement.
They didn’t do much research before they launched into the project in June 2009.
“My husband just said he wanted to do it, and I said that I was on board,” says Carol, who owns a beauty salon in Quincy.
The new basement, which is nearly finished, has a second bathroom, a laundry room and a family room with a pool table. Mark, who works for the local laborers’ union, did much of the interior work.
It took longer and cost more than they expected. They had to fix up their yard after the construction turned it into a mud pit. But they are happy with the results. “It’s wonderful,” Carol says.
In tough economic times, it’s important to make smart decisions. Here’s what to consider before you pick up a hammer:
1 – The biggest bang for your buck
Before you even come up with a plan, consider how long you will live in the home. If you only plan to stay for several years, you may not be able to earn back the cost of a major renovation. Short-term owners should consider simple cosmetics, such as refinishing floors, painting and updating fixtures and lighting. “They are little things that don’t cost much but can really update a room,” says David Lupberger, home-improvement expert with ServiceMagic.com, a website that connects homeowners to prescreened contractors.
If you plan to stay in the home for five years or longer, then a kitchen or bathroom renovation provides the best return on your investment.
“Owners can enjoy a nice modern kitchen and bathroom,” says Elizabeth Blakeslee, associate broker at Coldwell Banker Residential Brokerage in Washington, D.C. “Down the road if they want to sell the home, they’re in good shape, because it’s kitchens and bathrooms that sell homes.”
One of the biggest mistakes that people make is to install a new pool in parts of the country where the weather is colder, she says. In general, renovating should bring a property up to the value of the comparable houses nearby.
“But you don’t want to over-improve it and have the most expensive home on the block,” says Ben Woolsey, director of marketing and consumer research at CreditCards.com. “A good rule of thumb is that you shouldn’t try to improve the value of your home more than 25 percent of its current value.”
2 – Financing the project
Before you start renovating, estimate the cost and decide how you will pay for it.
The Durgins are happy with their lender’s advice. When they applied for a home-equity line of credit, he suggested a higher limit than they asked for. They wouldn’t have to use all of it, but they’d have a cushion if they’d underestimated their cost.
They originally thought they would need about $40,000. But they decided to ask for a $75,000 line of credit, and they ended up using $62,000.
Borrowing is not the only way to finance a remodeling job.
If your project is inexpensive and you have adequate savings, tapping them is the easiest way to go. Many use their credit cards for projects under a few thousand dollars.
Owners can finance a kitchen or bath renovation or add a deck that way. If you hire a contractor for a bigger project, the costs can balloon. Then you may be better off with a personal loan, a home-equity loan or line of credit.
Sharp declines in home values mean many owners have no equity to tap. For those who do, financing home improvements with a home-equity loan makes sense because the interest is tax-deductible, Woolsey says.
3 – Are you covered?
Before you start a project, make sure the contractor and subcontractors have adequate insurance coverage. Ask if the contractor has workers’ compensation, which covers lost wages and pays for medical and rehabilitation expenses if workers are injured. If not, an injured worker can sue you, says the Insurance Information Institute.
If you are adding an extra room, you will need to increase your home insurance coverage. Don’t wait until the renovation is completed to contact your insurance agent. If the addition is damaged or destroyed before insurance coverage has been increased, you may be responsible for the cost of repairing or rebuilding it, says Loretta Worters, vice president of the Insurance Information Institute.
Homeowners also should visit DisasterSafety.org, where the Institute for Business & Home Safety provides info about each state’s building codes and standards. It’s where homeowners can find out how to be sure contractors make their homes hurricane- or wildfire-resistant.
And during the renovation keep all of the receipts for items purchased, such as furniture and electronics, because you will want to make sure you have the right amount of coverage for personal possessions.
4 – Ways to save money
Kitchens and bathrooms are the most popular renovation projects. But don’t overlook less-visible improvements that may cut the costs of owning a house.
Updating old plumbing and electrical wiring and disaster proofing your roof may lower your insurance premiums.
Owners of older homes can reduce their energy bills by adding insulation and installing new windows. Federal and state tax credits for certain improvements – such as energy-efficient central air conditioning, heating or water heaters – can lower your costs even more.
In the end, a renovation project’s payoff may be measured best by how much satisfaction it gives the homeowners.
Newlyweds Keith and Julianne Knapp encountered many difficulties buying their house, a fixer-upper in the Cincinnati area that they eventually landed when it was sold in foreclosure for $168,000. Keith moved in before the wedding in July and started replacing ceilings and painting rooms. They have since added new fixtures and appliances, new carpeting and landscaping.
“Our neighbors tell us that they can’t believe that it’s the same house,” Keith says.
Their cost: about $10,000, paid out of savings, wedding-gift cash and a personal line of credit.
Now it’s the home where they plan to start a family. Says Keith, “We had a house-hunting nightmare with a storybook ending.”
Source: USA TODAY, a division of Gannett Co. Inc., Christine Dugas
To rent or buy? How to weigh it out
West Palm Beach resident and Realtor Laura Pearlman is selling her historic, Spanish-style home, and – gasp – considering renting.
It may go against every instinct for a Realtor to tout the benefits of renting over buying, but from about 2005 until just recently, it’s made more financial sense in many markets to rent as housing prices skyrocketed.
Now, following the epic housing crash and with interest rates at record lows, economists and financial planners say it might be time to rip up that annual rental lease for a more long-term, at least eight-year, commitment to buy.
But the decision often has as much to do with personal circumstance as real estate’s financial ups and downs, and individuals have many issues to weigh when considering the benefits of buying over renting.
Of course, it’s also all predicated on whether a potential buyer can even get financing from banks still struggling with bad boom-time loans.
In Pearlman’s case, the rigors of keeping up an 84-year-old home have become a burden, and she and her husband eventually want to move west to Wellington where they hope to find a larger piece of land.
An unsure market, however, is also a driving force in making the couple renters again.
Pearlman said the argument against renting is always “you’re throwing money away” while earning no equity, but she figures there’s no harm in renting for a year to see where the market settles out.
“My husband wants to rent because he just doesn’t want to take a chance right now,” Pearlman said. “Look, you can get a nice house for $1,250 a month, no homeowners association payment, no property taxes, no lawn care, no responsibility.”
Doing the math
Andres Carbacho-Burgos, a Moody’s economist, said there’s little doubt that renting in South Florida was a better bet during the peak years of 2005 and 2006.
“What has happened since then is the housing prices have come down by a lot more than the costs to rent an apartment,” he said.
To illustrate that, Carbacho-Burgos looks to a price-rent ratio that considers the buy-versus-rent question in a more mathematical way. The ratio is calculated by taking the median cost to buy a home and dividing it by the annual cost to rent.
A price-rent ratio less than 20 is generally considered a sign that it is better to buy.
For example, if the annual rent on a three-bedroom, one bathroom home is $15,000, and a similar home is selling for $200,000, the rent ratio is 13, favoring buying as the better option.
According to Moody’s, the average price-rent ratio using apartment rents in 2006 in Palm Beach County peaked at 31 but was down to 18 in the first quarter of this year.
But that number isn’t perfect. Theoretically, the calculation should use home rental rates, which aren’t easily available in a uniform format for specific areas.
Also, the 18 ratio is based on using median home prices from the National Association of Realtors, which can be fickle and quick to change depending on the volatility of the market.
Carbacho-Burgos said if the S&P/Case-Shiller home price index is used, Palm Beach County’s price-rent ratio today is about 15. The S&P/Case-Shiller index calculates prices monthly using a three-month moving average. It also uses data on properties that have sold at least twice in order to capture the true appreciated value of each home.
“I can’t answer the question in absolute terms, but the ratio is much closer to the norm now than at the peak of the housing market bubble,” Carbacho-Burgos said.
A more complex evaluation of whether it’s better to rent or buy in today’s market can be completed using one of many online calculators. Most of these calculators consider mortgage rates, down payments, tax breaks and closing costs when figuring the ratio. Some go as far as calculating annual maintenance on a home, monthly rental insurance and your personal rate of savings.
At Lendingtree.com, the calculation favors buying a $200,000 home as opposed to renting at $1,100 a month under the following circumstances: the buyer puts 20 percent down on a 30-year loan with a fixed 4 percent interest rate, and plans to stay in the home for at least five years.
Thinking long term
While the total cost to own the home in the first year far exceeds the rental payments, after five years the net cost to own is about $51,000 compared with paying $66,900 to rent.
“You should look at a house as something you want to live in, not a get rich quick thing,” said Barry Rabinowitz, a certified financial planner and principal of BER Financial Group, LLC in Plantation.
Rabinowitz recommends buying a home now if a person plans to stay in it for five to eight years.
“The days of houses going up in value 25 to 30 percent is not realistic, but neither is the other extreme of them going down that much either,” he said.
In July, Palm Beach County’s median sale price for a single-family home was $226,000, an 8 percent decrease from July last year, but down 42 percent compared with the price in 2006 of $390,100.
Rabinowitz’s recommendation is also based on itemizing deductions on a tax return, which allows a homeowner to claim mortgage interest and property taxes.
The mortgage-interest tax deduction doesn’t eliminate the cost of borrowing money, but it does reduce it.
“When you rent a house, nothing is deductible,” Rabinowitz said.
How much can be deducted depends on the mortgage interest paid each year. It is also important to consider what your standard deduction is for the year depending on age, marital status and income bracket. For example, the standard deduction for married couples in the 25 percent tax bracket and filing a joint return is $11,400 for 2010. If your mortgage interest was $11,520, for example, you get a slightly higher deduction, but you have to pay $11,520 in interest to receive it. The standard deduction for single filers for 2010 is $5,700.
House vs. condo
Answers to the rent vs. buy question also vary dramatically depending on whether it is a condominium or single-family home.
Peter Zalewski, a principal with Miami research and brokerage firm Condo Vultures, said you can buy an average condominium today in Palm Beach County for about as much as it would cost to rent it.
Single-family homes in neighborhoods on the upswing, however, are going to be more expensive in the first several years.
“If a buyer is looking at a five- to eight-year hold and understands different neighborhoods, buy today,” Zalewski said. “The likelihood is that single-family homes will recover quicker than a condo.”
And contrary to what conventional wisdom might say, Zalewski and Pearlman agreed that owners are not so desperate that they are offering rock-bottom rates on rental properties.
Renters should expect rates to go up between 3 percent and 5 percent each year, something that doesn’t happen with a fixed interest rate mortgage.
“If a tenant squeezes a landlord when the market is down, when it recovers, that landlord is going to squeeze back,” Zalewski said.
Source: The Palm Beach Post, Fla., Kimberly Miller. Distributed by McClatchy-Tribune Information Services.
It may go against every instinct for a Realtor to tout the benefits of renting over buying, but from about 2005 until just recently, it’s made more financial sense in many markets to rent as housing prices skyrocketed.
Now, following the epic housing crash and with interest rates at record lows, economists and financial planners say it might be time to rip up that annual rental lease for a more long-term, at least eight-year, commitment to buy.
But the decision often has as much to do with personal circumstance as real estate’s financial ups and downs, and individuals have many issues to weigh when considering the benefits of buying over renting.
Of course, it’s also all predicated on whether a potential buyer can even get financing from banks still struggling with bad boom-time loans.
In Pearlman’s case, the rigors of keeping up an 84-year-old home have become a burden, and she and her husband eventually want to move west to Wellington where they hope to find a larger piece of land.
An unsure market, however, is also a driving force in making the couple renters again.
Pearlman said the argument against renting is always “you’re throwing money away” while earning no equity, but she figures there’s no harm in renting for a year to see where the market settles out.
“My husband wants to rent because he just doesn’t want to take a chance right now,” Pearlman said. “Look, you can get a nice house for $1,250 a month, no homeowners association payment, no property taxes, no lawn care, no responsibility.”
Doing the math
Andres Carbacho-Burgos, a Moody’s economist, said there’s little doubt that renting in South Florida was a better bet during the peak years of 2005 and 2006.
“What has happened since then is the housing prices have come down by a lot more than the costs to rent an apartment,” he said.
To illustrate that, Carbacho-Burgos looks to a price-rent ratio that considers the buy-versus-rent question in a more mathematical way. The ratio is calculated by taking the median cost to buy a home and dividing it by the annual cost to rent.
A price-rent ratio less than 20 is generally considered a sign that it is better to buy.
For example, if the annual rent on a three-bedroom, one bathroom home is $15,000, and a similar home is selling for $200,000, the rent ratio is 13, favoring buying as the better option.
According to Moody’s, the average price-rent ratio using apartment rents in 2006 in Palm Beach County peaked at 31 but was down to 18 in the first quarter of this year.
But that number isn’t perfect. Theoretically, the calculation should use home rental rates, which aren’t easily available in a uniform format for specific areas.
Also, the 18 ratio is based on using median home prices from the National Association of Realtors, which can be fickle and quick to change depending on the volatility of the market.
Carbacho-Burgos said if the S&P/Case-Shiller home price index is used, Palm Beach County’s price-rent ratio today is about 15. The S&P/Case-Shiller index calculates prices monthly using a three-month moving average. It also uses data on properties that have sold at least twice in order to capture the true appreciated value of each home.
“I can’t answer the question in absolute terms, but the ratio is much closer to the norm now than at the peak of the housing market bubble,” Carbacho-Burgos said.
A more complex evaluation of whether it’s better to rent or buy in today’s market can be completed using one of many online calculators. Most of these calculators consider mortgage rates, down payments, tax breaks and closing costs when figuring the ratio. Some go as far as calculating annual maintenance on a home, monthly rental insurance and your personal rate of savings.
At Lendingtree.com, the calculation favors buying a $200,000 home as opposed to renting at $1,100 a month under the following circumstances: the buyer puts 20 percent down on a 30-year loan with a fixed 4 percent interest rate, and plans to stay in the home for at least five years.
Thinking long term
While the total cost to own the home in the first year far exceeds the rental payments, after five years the net cost to own is about $51,000 compared with paying $66,900 to rent.
“You should look at a house as something you want to live in, not a get rich quick thing,” said Barry Rabinowitz, a certified financial planner and principal of BER Financial Group, LLC in Plantation.
Rabinowitz recommends buying a home now if a person plans to stay in it for five to eight years.
“The days of houses going up in value 25 to 30 percent is not realistic, but neither is the other extreme of them going down that much either,” he said.
In July, Palm Beach County’s median sale price for a single-family home was $226,000, an 8 percent decrease from July last year, but down 42 percent compared with the price in 2006 of $390,100.
Rabinowitz’s recommendation is also based on itemizing deductions on a tax return, which allows a homeowner to claim mortgage interest and property taxes.
The mortgage-interest tax deduction doesn’t eliminate the cost of borrowing money, but it does reduce it.
“When you rent a house, nothing is deductible,” Rabinowitz said.
How much can be deducted depends on the mortgage interest paid each year. It is also important to consider what your standard deduction is for the year depending on age, marital status and income bracket. For example, the standard deduction for married couples in the 25 percent tax bracket and filing a joint return is $11,400 for 2010. If your mortgage interest was $11,520, for example, you get a slightly higher deduction, but you have to pay $11,520 in interest to receive it. The standard deduction for single filers for 2010 is $5,700.
House vs. condo
Answers to the rent vs. buy question also vary dramatically depending on whether it is a condominium or single-family home.
Peter Zalewski, a principal with Miami research and brokerage firm Condo Vultures, said you can buy an average condominium today in Palm Beach County for about as much as it would cost to rent it.
Single-family homes in neighborhoods on the upswing, however, are going to be more expensive in the first several years.
“If a buyer is looking at a five- to eight-year hold and understands different neighborhoods, buy today,” Zalewski said. “The likelihood is that single-family homes will recover quicker than a condo.”
And contrary to what conventional wisdom might say, Zalewski and Pearlman agreed that owners are not so desperate that they are offering rock-bottom rates on rental properties.
Renters should expect rates to go up between 3 percent and 5 percent each year, something that doesn’t happen with a fixed interest rate mortgage.
“If a tenant squeezes a landlord when the market is down, when it recovers, that landlord is going to squeeze back,” Zalewski said.
Source: The Palm Beach Post, Fla., Kimberly Miller. Distributed by McClatchy-Tribune Information Services.
As housing languishes, mortgage write-downs gain appeal for banks
Eager to avoid writing down the loans on their books, banks have been extending many of them with the hope that the market will improve. Even banks that foreclosed on properties have kept them on their books, reluctant to auction them in a market where investors offer as low as 10 cents on the dollar.
Now that appears to be changing, and it could have implications for property owners caught up in the sell-off.
“The proverbial logjam is beginning to break up,” said Jim Anthony, CEO of Anthony & Co., a Raleigh real estate services company.
As evidence, Anthony said BB&T plans to auction $1 billion of performing and nonperforming loans in the Southeast.
BB&T would neither confirm nor deny reports of the auction. “BB&T continues to evaluate opportunities to best execute our problem loan disposition strategy, which may or may not include bulk sales,” said spokeswoman Cynthia Williams.
BB&T has been more aggressive of late in writing down its troubled loans and moving to rid itself of some of them. The bank’s CEO, Kelly King, has indicated the strategy will continue as long as investor appetite for the loans remains at current levels.
Other regional banks, including Pittsburgh-based PNC Financial Services Group and Birmingham, Ala.-based Regions Financial, are pursuing similar strategies.
The move to deal with troubled real estate loans is driven partly by federal regulators who have increased pressure on banks whose capital ratios fall below a certain level.
“I think the banks are coming to terms with the fact that, particularly, commercial real estate is declining in value and it’s just not coming back in the next three months or six months,” said Tony Plath, a banking professor at the University of North Carolina-Charlotte. “It’s going to be a while before we’re out of the hole as far as real estate values are concerned.”
The auctions also are a sign that the gap between what the banks will take for the loans – and what investors will pay – is narrowing.
“I think all of the banks have reached the point where they realize they’re not going to get 80 cents on the dollar for the value of the loans they package,” Plath said. “They’re going to be looking at something like 35 or 40 cents on the dollar, which seems to be where these loan packages are selling.”
For property owners whose loans are included in these packages, the auctions could mean trouble.
If an investor buys a loan for 40 cents on the dollar, that means they can foreclose on the property, auction it off and still make a profit.
“The borrowers that are included in the package face much more rigorous collection efforts on behalf of the buyer,” Plath said. “(If you’re a borrower,) you really don’t want that loan sold.”
Source: The News & Observer (Raleigh, N.C.). Distributed by McClatchy-Tribune Information Services.
Now that appears to be changing, and it could have implications for property owners caught up in the sell-off.
“The proverbial logjam is beginning to break up,” said Jim Anthony, CEO of Anthony & Co., a Raleigh real estate services company.
As evidence, Anthony said BB&T plans to auction $1 billion of performing and nonperforming loans in the Southeast.
BB&T would neither confirm nor deny reports of the auction. “BB&T continues to evaluate opportunities to best execute our problem loan disposition strategy, which may or may not include bulk sales,” said spokeswoman Cynthia Williams.
BB&T has been more aggressive of late in writing down its troubled loans and moving to rid itself of some of them. The bank’s CEO, Kelly King, has indicated the strategy will continue as long as investor appetite for the loans remains at current levels.
Other regional banks, including Pittsburgh-based PNC Financial Services Group and Birmingham, Ala.-based Regions Financial, are pursuing similar strategies.
The move to deal with troubled real estate loans is driven partly by federal regulators who have increased pressure on banks whose capital ratios fall below a certain level.
“I think the banks are coming to terms with the fact that, particularly, commercial real estate is declining in value and it’s just not coming back in the next three months or six months,” said Tony Plath, a banking professor at the University of North Carolina-Charlotte. “It’s going to be a while before we’re out of the hole as far as real estate values are concerned.”
The auctions also are a sign that the gap between what the banks will take for the loans – and what investors will pay – is narrowing.
“I think all of the banks have reached the point where they realize they’re not going to get 80 cents on the dollar for the value of the loans they package,” Plath said. “They’re going to be looking at something like 35 or 40 cents on the dollar, which seems to be where these loan packages are selling.”
For property owners whose loans are included in these packages, the auctions could mean trouble.
If an investor buys a loan for 40 cents on the dollar, that means they can foreclose on the property, auction it off and still make a profit.
“The borrowers that are included in the package face much more rigorous collection efforts on behalf of the buyer,” Plath said. “(If you’re a borrower,) you really don’t want that loan sold.”
Source: The News & Observer (Raleigh, N.C.). Distributed by McClatchy-Tribune Information Services.
Wednesday, September 8, 2010
Some experts weary of government intervention
An increasing number of economists and housing analysts are urging the government to step back and let the housing market fall where it may.
“Housing needs to go back to reasonable levels,” says Anthony B. Sanders, a professor of real estate finance at George Mason University. “If we keep trying to stimulate the market, that’s the definition of insanity.”
“We have had enough artificial support and need to let the free market do its thing,” housing analyst Ivy Zelman says.
Even the National Association of Home Builders hasn’t been supportive of another tax credit, because its members believe that in order for one to have impact it would have to be worth at least $25,000 — an unlikely proposition.
“Our members are saying that if we can’t get a very large tax credit — one that really brings people off the bench — why use our political capital at all?” says David Crowe, NAHB’s chief economist.
Source: The New York Times, Davie Streitfeld (09/06/2010)
Source: INFORMATION, INC. Bethesda, MD
“Housing needs to go back to reasonable levels,” says Anthony B. Sanders, a professor of real estate finance at George Mason University. “If we keep trying to stimulate the market, that’s the definition of insanity.”
“We have had enough artificial support and need to let the free market do its thing,” housing analyst Ivy Zelman says.
Even the National Association of Home Builders hasn’t been supportive of another tax credit, because its members believe that in order for one to have impact it would have to be worth at least $25,000 — an unlikely proposition.
“Our members are saying that if we can’t get a very large tax credit — one that really brings people off the bench — why use our political capital at all?” says David Crowe, NAHB’s chief economist.
Source: The New York Times, Davie Streitfeld (09/06/2010)
Source: INFORMATION, INC. Bethesda, MD
Pros and cons of corner properties
Some people see a corner lot as an asset, but an equal number believe it is a liability.
Pluses of these properties include more flexible design options, shorter driveways, sunnier interiors and more on-street parking. The negatives are a small and not-very-private backyard, more noise, more streetlights and headlights, and a greater need to look out for dogs and children.
Additional maintenance demands, which bring higher costs, discourage some would-be buyers of corner properties, said Steve Hovany, president of Schaumburg’s Strategy Planning Associates, a real estate planning consultancy.
But some buyers like corner homes anyway. A corner home “is a rare home,” said Ray Hartshorne, partner with Chicago’s Hartshorne Plunkard Architecture. “It’s a home that’s distinctive in a world that makes distinctive homes more valuable.”
Source: Chicago Tribune, Jeffrey Steele (09/03/2010)
Source: INFORMATION, INC. Bethesda, MD
Pluses of these properties include more flexible design options, shorter driveways, sunnier interiors and more on-street parking. The negatives are a small and not-very-private backyard, more noise, more streetlights and headlights, and a greater need to look out for dogs and children.
Additional maintenance demands, which bring higher costs, discourage some would-be buyers of corner properties, said Steve Hovany, president of Schaumburg’s Strategy Planning Associates, a real estate planning consultancy.
But some buyers like corner homes anyway. A corner home “is a rare home,” said Ray Hartshorne, partner with Chicago’s Hartshorne Plunkard Architecture. “It’s a home that’s distinctive in a world that makes distinctive homes more valuable.”
Source: Chicago Tribune, Jeffrey Steele (09/03/2010)
Source: INFORMATION, INC. Bethesda, MD
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