Know Massachusetts Homes

Housing, Debt & The Economic Crisis

A few days ago, Atif Mian (Professor of Economics at UC Berkeley) and Amir Sufi (Professor of Finance at U of Chicago) had a piece on Bloomberg.com about the impact of housing debt on US economic recovery. [Click here for the link:] The piece is a little like the legendary sociology study that concluded that it was largely poor people who live in slums. If you don’t know the problem with housing is debt, then you are probably a little obtuse. But then come two related questions: (a) What is the source of our debt problems? (b) What can we do about them?

The truth is that both the source and the solution lie not in housing, but in the great world of finance. The current problems stem from the collapse of credit at the end of 2008 – a collapse that had been on the horizon for a good year, and longer, in advance of the crisis. Sudden credit contractions apparently are something of a mystery to economists, although it has happened periodically ever since modern large scale credit was invented around the 17th century. For several centuries now, the supply of money has been closely linked to credit. The shrinking of credit means a shrinking of the money supply; lower availability of money means a rise in its value, means a lowering of prices but a shrinking of the economy as well. In other words, deflation and disaster.

What is the solution? Certainly I don’t know, but clearly it is related to increasing the money supply and expanding the economy. Those who argue for shrinking credit and tightening the money supply are simply trying to increase the value of the money held by those who have it. I must say that given that money these days is tied to the full faith and credit of governments and to national (and global) economic health, I’m not sure that deflation will benefit even the rich, even in the short term.

It is very frustrating to those in the housing industries that we have suffered so much at the hands of those in the financial industries. However, we need each other, so we need to find a solution that benefits both, and benefits our clients and the economy in general.

Selling? Get The House Ready Before You Go On The Market

Here are some tips in an article from HouseLogic.com, National Association of Realtors' consumer website.

 5 Tips to Prepare Your Home for Sale

Article From BuyAndSell.HouseLogic.com By: G. M. FiliskoPublished: February 10, 2010

Working to get your home ship-shape for showings will increase its value and shorten your sales time

Many buyers today want move-in-ready homes and will quickly eliminate an otherwise great home by focusing on a few visible flaws. Unless your home shines, you may endure showing after showing and open house after open house-and end up with a lower sales price. Before the first prospect walks through your door, consider some smart options for casting your home in its best light.

• Have a home inspection

 Be proactive by arranging for a pre-sale home inspection. For $250 to $400, an inspector will warn you about troubles that could make potential buyers balk. Make repairs before putting your home on the market. In some states, you may have to disclose what the inspection turns up.

• Get replacement estimates

If your home inspection uncovers necessary repairs you can't fund, get estimates for the work. The figures will help buyers determine if they can afford the home and the repairs. Also hunt down warranties, guarantees, and user manuals for your furnace, washer and dryer, dishwasher, and any other items you expect to remain with the house.

• Make minor repairs

Not every repair costs a bundle. Fix as many small problems-sticky doors, torn screens, cracked caulking, dripping faucets-as you can. These may seem trivial, but they'll give buyers the impression your house isn't well maintained.

• Clear the clutter

Clear your kitchen counters of just about everything. Clean your closets by packing up little-used items like out-of-season clothes and old toys. Install closet organizers to maximize space. Put at least one-third of your furniture in storage, especially large pieces, such as entertainment centers and big televisions. Pack up family photos, knickknacks, and wall hangings to depersonalize your home. Store the items you've packed offsite or in boxes neatly arranged in your garage or basement.

•  Do a thorough cleaning

A clean house makes a strong first impression that your home has been well cared for. If you can afford it, consider hiring a cleaning service.

If not, wash windows and leave them open to air out your rooms. Clean carpeting and drapes to eliminate cooking odors, smoke, and pet smells. Wash light fixtures and baseboards, mop and wax floors, and give your stove and refrigerator a thorough once-over..

Pay attention to details, too. Wash fingerprints from light switch plates, clean inside the cabinets, and polish doorknobs. Don't forget to clean your garage, too.

More from HouseLogic

Develop a Landscape Plan to Fit Your Budget (http://www.houselogic.com/articles/develop-a-landscape-plan-to-fit-your-budget/)

Spring Cleaning Guide (http://www.houselogic.com/articles/spring-cleaning-guide/)

G.M. Filisko is an attorney and award-winning writer who has found happiness in a Chicago brownstone with the best curb appeal on the block. A frequent contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

Call, text or E-mail me for more on getting your home ready for the market.

A Financial Plan for Your Home

Here’s an article from the National Association of Realtors site at www.houselogic.com from a couple of years ago. I thought it was pretty good and decided to pass it on to you as a service. I’ve always remarked on the fact that people follow their investments in financial instruments – personalty they used to call it – on a day-to-day basis but ignore what is often their biggest investment – their homes, or realty – from year-to-year. You should have a good Realtor® who can help you track your home’s worth and advise you on maintenance, repair, restoration and remodeling. This is free, valuable, professional advice. Always feel free to call me.

A Financial Plan for Your Home By: Richard Koreto Published: August 28, 2009

Your home is probably your biggest investment. To manage it, create a financial plan that takes into account repairs, upgrades, mortgages, insurance, and taxes.

Use our home financial plan budget worksheet, and start by writing a list of expenses, such as:

• Mortgage
• Taxes
• Home insurance, including liability
• Repairs and maintenance, such as new furnace, roof, painting
• Voluntary upgrades, such as a swimming pool, a premium range, a new powder room

What will you learn from this home financial plan weekend exercise?

• How much you have to spend
• How much you need to allot in the short- and long-term for necessary maintenance and voluntary improvements

With this newfound grip on your home’s expenses, you can create a home financial plan that’ll help you there for years with maximum enjoyment and minimum anxiety.

The mortgage: Pay it—and then some

Yup, you already shell out a lot for your mortgage, but can you pay more? Even a little extra each month can add up to an earlier payoff. Let’s say you have $200,000 in outstanding principal and a 20-year fixed-rate mortgage at 5%. Your monthly payment is $1,319.91. But if you can manage to pay another $100 a month, you’ll save $14,887 in interest.

Run the numbers yourself for your home financial plan.

Advantages of an early payoff, says Alan D. Kahn, a financial planner in Syosset, N.Y.:

• Less debt means more money to spend later.
• It feels darn good to own your house outright as soon as possible.
• Minimal tax loss. Toward the tail end of the life of a loan most of your payment goes to the principal, not the interest, so you’re getting only a small tax break anyway.

 Of course, if you’re still saving for retirement, put the 100 bucks elsewhere:

• A retirement plan
• An account for the inevitable home repairs
• An account for discretionary improvements, which can raise your home’s value
• Insurance: Protect your property

 Your vegetable garden is pointless without a fence to keep out rabbits; likewise, your home financial plan will come to nothing without an insurance “fence”:

• Homeowner’s insurance. Basic coverage for your home and everything in it. The average cost is $636 per year but this varies widely by state.
• Liability coverage. Protects you from a lawsuit if someone gets hurt on your property, for example. Your best bet: An umbrella policy. For about $300 a year you can buy a typical $1 million policy.
• Various disaster insurance policies. Optional policies cover flood, earthquake, and hurricane damage. As part of your home financial plan, you have to research to see what disaster coverage, if any, you need in your area, and what your standard policy already covers. For $540 a year you can buy flood insurance, for example.

 Don’t under- or overbuy insurance

For your basic policy, get homeowners insurance with full replacement coverage in case your house burns to the ground.

That sounds simple, but heads up on calculation. Remember that you own a house as well as the land on which it sits. So even though you bought your home for $300,000, it may cost only $100,000 to rebuild it. Your policy limits should reflect this. This difference will vary widely by region.

Another heads up: Don’t make the common and potentially disastrous mistake of thinking that because your home has fallen in value you need less insurance. If you bought a $1.2 million townhouse in Florida during the boom, it’s true it now may only sell for $600,000. But the replacement cost of the townhouse hasn’t changed much, so you can’t improve your home financial plan by cutting insurance costs that way.

Other ways to cut your insurance budget:

• If you make structural improvements, such as adding storm shutters, your insurer may give you a break.
• If you belong to certain groups, such as AARP or veterans’ organizations, your premiums may be lower.

Repairs and renovations: By choice or necessity

 You own a home, so you’ll be spending money on everything from a new faucet to—surprise!—a new roof. Freddie Mac and other authorities say as part of your home financial plan, you should be prepared to spend 1% to 3% of the market value of the home annually on maintenance. To be extra-prudent, open a savings account and make regular payments until your account reaches 1% to 3% of your home’s current value.

 To help you budget:

• Start with the inspection report you received when you bought the house. Did the inspector indicate that you would need a new roof in five years? A new furnace in 10?
• Keep a log of your major appliances’ age so you can estimate when they’ll need replacing. Some estimated life spans:
  • Roof: 20-25 years
  • Heating systems: 15-20 years
  • Range/ovens: 11-15 years
  • Water heaters: 8- 13 years
  • Then get estimates on what replacements will cost and start saving.
• Consider ongoing non-emergency maintenance, too. Do you live in New England? Price a snow blower and get bids from plow services.

 Resist the siren call of the home equity loan to take care of everything. That just defeats your efforts to pay off the mortgage early.

Separate out what you want from what you need. A $50,000 kitchen remodel is nice, but you’ll recoup only 76% of the project cost at your home’s resale, according to Remodeling magazine.

If you can afford to redo, go for it. Just don’t confuse your necessary repairs (new oil furnace—about $4,000) with your discretionary upgrades (Viking range—$6,000 and up).

Taxes: (Almost) no way around them

Even if your lender handles your property taxes from an escrow account, you need to budget for them in your home financial plan. They creep up almost every year, it seems. Take responsibility for tracking the changes in your area: Look over past tax bills to get a sense of how quickly they’ve risen in the past.

Or if your lender handles escrow and you haven’t saved your bills, ask for an accounting. The median annual property tax payment is $2,198, but that hides the enormous range in medians from state to state:

• New Jersey: $6,320
• New York: $3,622
• California: $2,829
• Alabama: $383
• Louisiana: $188

 You can generally deduct property taxes on your federal return. A tax pro can tell you how much of a tax break you’ll get, to help you fine tune your home financial plan.

You may be able to reduce your tax burden by getting a reassessment. Do your homework first: Are comparable houses taxed less than yours? Ask the local assessor what formula is used to set tax rates. You can challenge the assessed value and get yourself a rollback.

If you’re in a special group, you might get some help from state or local programs. Check around to see what’s available in your area. New York State, for example, has its Star Program for giving senior citizens some relief from school-related property taxes.

Visit www.HouseLogic.com for more articles like this. Reprinted from HouseLogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS®.

How to Make Sure Your Home Sells at the Right Price

Establishing a reasonable and profitable listing price for a home is perhaps the greatest challenge for every home seller. A lot of factors have to be considered before settling on a listing price. I recommend that you take the following steps before setting an asking figure.

Get a CMA.  A competitive market analysis (CMA) will provide a list of recent sale prices of similar homes in the area (with comparable numbers of bedrooms, baths, square footage and lot size), the asking prices of homes currently for sale nearby and other important information. Prospective sellers should be provided with a professional estimation of a legitimate selling price.

Take the Emotion Out of It. A sales associate will evaluate the location, condition and size of your home. A house in a secluded, exclusive area may appeal to some, while others will want to be closer to schools, shopping and health care facilities. What is the physical condition of your home? Is it a fixer-upper? Does it make a good first impression (the ever important curb appeal)? Will it appeal to a growing family, or is it better suited to empty nesters?

Find out If It Is a Buyers’ or a Sellers’ Market. Real estate markets vary from neighborhood to neighborhood. Home inventory, mortgage interest rates and the local economy play a role in determining whether the buyer or seller has a negotiating advantage. Interest rates remain at historically low levels and financing is available for those qualified, putting buyers in a good position to achieve homeownership. Your agent should create a marketing strategy for your home. The list price is less an announcement of how much money you want than it is an inducement to consider your home for purchase.

Do the Math. Remember to figure in closing costs, legal fees and other selling expenses when determining your net from sale. Your agent will provide cost estimates, and negotiate with any potential buyer to ensure a good sale price.

Give your home the Once Over. There is one more step to ensure that the house sells for your price, or more. Do as much as possible to improve the home's appearance: touch up the paint, fix leaks, seal any cracks, clean up the clutter, and eliminate pet odors. The house has only one chance to make a first impression. You might consult with a professional home-stager. Your agent can recommend a good one. 

“DOs AND DON’Ts” FOR FIRST-TIME HOMEBUYERS

For most people, buying a home is the most significant investment of their lives.  In spite of the doubt and confusion crowding both the financial markets and news headlines, 2012 presents lots of genuine real estate opportunities – maybe especially for first-time buyers.

On average, housing inventory is up, and prices are down; historical data demonstrates that buying a home has proven a sound long-term financial investment. However, first-time homebuyers are often understandably anxious when it comes time to make what could be the biggest purchase in their life. Here is a simple “dos and don’ts” list to help make the process easier for anyone dreaming of homeownership.

DOs:

• DO use free online tools to arm you with as much knowledge as possible.  Visit real estate Websites like devallon.com NewEnglandMoves.com and Realtor.com to find information on the latest tax credits, mortgage calculators, and the home buying process overall. You can find some good tips at DeVallon TV as well.
• DO take time to access and closely review your credit score. Your Certified Buyer's Representative can help you with that. A sound financial track record and solid credit score can help lock in a loan and lower interest rates.  Checking your records with a fine-tooth comb in advance will also ensure that you catch any errors ahead of time, as well as help you better understand how lenders may perceive you.
• DO get a mortgage pre-approval.  Again, your Certified Buyer's Representative can help you with that. Getting this early green light will help others involved with your purchase that you are serious about home ownership – and well-qualified. [watch the video “Is Getting Pre-Approved on Your Mortgage Important” at DeVallon TV]
• DO line up your Buyer’s Broker early, well before ‘game day’. A good broker – preferably a Certified Buyer’s Representative or Accredited Buyer’s Representative – will have an “all-star” team of experienced professionals at the ready – suitable lawyers, mortgage lenders, home inspectors and others who play a role in the process. This will be key to making the home buying process simple and seamless. Select a broker whom you can “connect” with and who will go the extra mile for you. And who knows how to negotiate a deal that will hold up all the way to closing.
  
• DO anticipate your future needs and buy for lifestyle.  Try to anticipate how long you’ll live in your next home and plan for major lifestyle changes when possible.  What may make a perfect starter home for a couple might not work as well when children come into the picture.  Remember, people move for lifestyle reasons and your first home will likely not be your last.
• DO hone in on your housing priorities.  Your ideal home may have a porch, a pool and five full baths.  But before you start looking, make sure to separate your “must-haves” from your “nice to haves,” so you know where you can compromise to meet your budget

 DON’Ts:

• DON’T fall in love with the first house or neighborhood you see without seeing what else is around.  That grand colonial with the picturesque view may win your heart at first glance, but don’t fall in love too fast.  You need to keep an open mind to make sure you find the right fit for your needs.  At the end of your search, it may turn out that the riverfront ranch that’s closer for your commute is a better bet all-around. Or maybe that grand colonial really is it. But now you know for sure, with no regrets.
• DON’T buy beyond what you can afford.  It’s easy to fall into that all-you-can-eat attitude when it comes to your first home purchase.  You “want it all” when it comes to size, amenities, location, etc.  But remember that your eyes may have a larger appetite than your wallet can manage easily.  Make sure that the down payment, closing costs, monthly expenses and taxes are truly within your income and savings range before you sign.
• DON’T expect your home to behave like a portfolio of high-risk securities.  It’s unrealistic and unwise to expect your housing investment to appreciate as quickly as you’d hope for your high-risk bonds.  Buying for lifestyle, as opposed to trying to turn a quick profit, will help ensure that you are viewing home purchasing and ownership in the right context.
• DON’T try to time the market. No kidding. Don't. By the time most consumers sense a major real estate or financial market shift, the tables have typically already turned.  Instead of waiting for a slim and unreliable window of time – and potentially missing out on the perfect home – focus on your own lifestyle and buy when the time is truly right for you.
• DON’T jump into an exotic or confusing mortgage.  When it comes to down payments and mortgages, if it sounds too good to be true, it probably is.  Your Buyer's Broker can put you in touch with a reliable lender. Be sure to read carefully through every aspect of any proposed loan agreements to fully understand your end of the bargain.  For instance, what seems like an attractive rate now may balloon exponentially a few years down the road.  So arm yourself with information and don’t be afraid to ask questions. Concentrate on the monthly payments and the closing costs. Can you afford this?
• DON’T underestimate the value of a trustworthy real estate broker’s on-the-ground expertise.  While being a savvy buyer and doing one’s homework will help on the road to homeownership, a local expert with years of negotiating experience is invaluable when it comes to scouting out the perfect home – and closing the deal.