April, 2010

Did You Miss a Tax Credit BETTER than the Home Buyer Tax Credit?

Monday, April 26, 2010

Missed the Home Buyer Tax Credit? No big deal!

There’s been a lot of anxiety over trying to buy a home in time to qualify for the First-Time Home Buyer Tax Credit. It was good as far as it went. It certainly got a lot of people off the sidelines and into the home of their dreams. It’s also gotten a lot of people into a home they don’t really love, just for the sake of getting that tax credit. You’d be interested to know that there was a tax credit EVEN BETTER than the one for first-time home buyers.

For the biggest bang for your buck, the Cash for Clunkers program was even better than the First-Time Home Buyer Tax Credit.

Cash For Clunkers Savings First-Time Home Buyer Savings
12% 4%

 
The Cash for Clunkers program offered between $3,500-$4,500 bucks if you turned in an old car and bought a new one for under $45,000 dollars. Do the math: You saved 12% off a new $30,000 car if you got the minimum $3,500 rebate. That’s not a bad savings!

First-time home buyers were eligible for an $8,000 tax credit but if you did the math, they really only saved 4% on a $200,000 home. $8,000 bucks buys a lot of sandwiches but doesn’t really save that much when you think about it.

The point is, if you didn’t run out and buy a new car to save 12%, you’re probably not too worked up about not saving 4% on a new home.

On the other hand, if you’re reading this, you’re probably still in the market for a new home. SERIOUS buyers are watching:

  1. Home Prices – The MLS and Nat’l. Assoc. of Realtors® have declared a seller’s market in Essex and Middlesex counties. (Read Is it REALLY a Seller’s Market?, and 4Q09 Economic and Market Watch Report) Each new home coming on the market today is priced more aggressively than the last.
  2. Mortgage Interest Rates – Mortgage interest rates are low by historical standards. Even if they shoot up to 6%, they’re still low. They’re just not as low as the 5% that you could have had just a month or so ago. When rates go up by 1%, you LOSE $20,000 in buying power on a $200,000 home. On a $300,000 dollar home, you’ll spend $30,000 more just in financing. That hurts.
  3. Taxes – Have taxes EVER gone down? Demand for government services continues to increase. The problem is, the “government” is us. Governments don’t have money. The services they provide are paid for by taxpayers like you. The government has bailed out the auto industry, the housing industry, and the financial industry. It’s pressing to “go green” and to reform health care. All this money comes from income taxes and… wait for it… property taxes. You’ll soon see an increase in property tax rates and home assessments. These new amounts will be plugged into the mortgage calculator. The pain will become evident.
  4. Inflation – There’s a lot of worry in the financial press about inflation. And why not? The government has turned on the printing presses and put a lot of money into the system. All this money sloshing around will create demand for goods and services. The buyers for the goods and services are just coming back into the market. Tech spending is way up and manufacturing is coming around. Industry is ramping up in anticipation of greater consumer demand. When this pent-up demand hits, watch out! When you’re spending more on everything else, you’ll have less to spend for a new home.

A defensive play in real estate means BUYING A HOME TODAY to lock in low interest rates, low home prices, and low taxes before higher inflation takes a big bite out of the home of your dreams. (Read How to Take the Risk Out of Buying a Home)

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Posted in Economy, Inflation, Interest Rates | Your Thoughts? (0) »



Is it REALLY a Seller’s Market?

Tuesday, April 6, 2010

How to tell if you’re being priced out of the market

You’ve been sitting on the fence about buying a home. You’ve been looking and looking but nothing really strikes your fancy. There’s a good reason for that! You’re being priced out of the market. And it’s only going to get worse from here.

Your Price Range is Getting Tight

You don’t see it coming – it happens that slowly – but one day you wake up and decide that now is not the time for you to buy a home. You just got priced out of the market.

It’s a shame, too: There are so many good homes just begging to be bought but you keep waiting for new inventory. And it never comes. That’s because new inventory is being priced more aggressively with each passing day. The new, GOOD stuff is not hitting your universe and you don’t know it because you’re “looking for homes between X and Y.”

Here’s the scenario: You buy your home based on your monthly payment. You HAVE to. It’s an economic reality. So, you set your Internet search criteria for homes in your price range. You can’t move higher than that because you can’t afford it. It’s normal. Only Bill Gates and Warren Buffet have the luxury of buying any darned thing they want. The rest of us have to live with the universe of homes in our search criteria’s price range. That’s YOUR universe. Read Fantastic Inventory.

The Mortgage Calculator Brings Bad News

You start to notice that the new stuff that hits your radar isn’t quite what you were looking for. Each day, you get more frustrated. You start playing with numbers with the mortgage calculator to see if you can afford more. You check the interest rates and notice that they’re ticking up. When you plug the new number in, your dreams are dashed!

The next shoe to drop is the disappearing tax credit. Current homeowners are eligible for $6,500 bucks, first-timers could score $8,000 grand. You have to sign a purchase and sale agreement by April 30 and close on the deal by June 30. Short sales and bank-owned properties disappear from the radar since they probably won’t close in time. After April 30, everything gets $6,500-$8,000 more expensive.

The numbers start looking worse for you. How about tax rates? Someone has to pay for free health care, “cash for clunkers,” tax credits for homebuyers, and all that other stimulus. You’ll see that person in the mirror. Property assessments start to rise, tax rates are hiked. The new reality that comes from the mortgage calculator is not pretty when you plug in higher taxes.

Jobs: Good News, Bad News

The good news on the jobs front is that jobs are coming back. Hooray! The bad news for homebuyers is that jobs are coming back. Boooooo… More people with more money in their pockets means increased competition. More demand means higher home prices.

Not too many folks are worried about mass layoffs anymore. Indeed, the latest reports from the National Association of Realtors and MLS Property Information Network, the local Multiple Listing Service, is that Essex and Middlesex counties have fallen into Seller’s Market territory. The main driver of this new phenomenon is jobs.

The most recent report is the 4th Quarter 2009 Economic and Market Watch. It shows that on a scale from 1 to 5, with 5 being a full-blown Seller’s Market, Essex and Middlesex counties are at a 4. The prior two quarters were at a neutral 3. You can see all these reports on the MLS Web site.

What’s Past is Prologue

Shakespeare said it best, “What’s past is prologue.” The fourth quarter of 2009 is old news. You and your Realtor® are making fresh news TODAY. Don’t let the headline read, “Seller’s Market Leaves Would-Be Buyers in the Cold.”

How to Save Yourself

Folks on the fence about buying a home are spending WAY too much time in front of a computer screen and not enough time inside of houses. The Internet is a sword that cuts two ways: It makes searching for homes so much easier but it also feeds your indecision. You’re overloaded with information but the information you’re getting is not helping you make a decision.

Pretty pictures on the Internet don’t tell you anything about the layout of a house. The pretty pictures are silent on the location or neighborhood. If you’re SERIOUS about buying a home, you absolutely MUST work with a Realtor® who can help you line up financing, set up private viewings on YOUR schedule, and coordinate the closing and final move into your new home.

A Realtor® will help you decide what’s best for you and your family. The Internet will show you pretty pictures of a Seller’s Market while you get priced out of the market.

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Posted in Buyers, Economy, Uncategorized | Your Thoughts? (1) »



Nothing Says “Spring” Like Tomatoes

Friday, April 2, 2010

Tomatoes: One of the BEST reasons to buy a home

To me, there’s no better reason for buying a home than to plant tomatoes! It’s not too late to start yours.

Brandywine Tomatoes started just a week ago

Sure, we’re all thinking about interest rates, home prices, and tax credits but, let’s face it, the ONLY reason to buy a home is to enjoy some of the simple pleasures of life right in your own backyard. For me, when I bought my home, it was a small garden. All I wanted was a small patch of sunny Earth to till and some seeds to watch grow. I found my piece of Heaven on Swan Street in Methuen.

Brandywine Tomatoes started just a week ago

I’m cleaning up from some of the worst rainfall and flooding since Noah’s Ark; I got two feet of water in my own basement! I’m pretty much ship-shape now, though. I’m enjoying a cigar that one of my clients bought me (Thanks, Dave G.!) and sipping one of my favorite amber-colored liquids. My little dog, Lady, is begging for attention and my wife, Anne, thinks I’m staying up too late. Or is it the other way around? Life is good.

Brandywine Tomatoes started just a week ago

Around these parts, you want to start your tomato seeds indoors now – about two months before the last frost. That’s just about Memorial Day. When that long weekend hits, I hope to find a few hours to plant my own seedlings outdoors.

Brandywine Tomatoes started just a week ago

The gold standard of tomatoes is the Brandywine. They’re an “heirloom” variety which means that the seeds have been passed down from generation to generation. The fruit is pink and it’s all meat inside. They’re sweeter than the average tomato; not quite as acidic. There’s barely enough pulp and seeds to save for next season but you can manage to find some.

I always make sure to save some of the seeds for next year. These seeds are two years old. I couldn’t get seeds from last year’s crop because the harvest was crummy due to all the rain during the growing season. Again with the rain! I was lucky to find an old packet of seeds that I didn’t need. These seeds were started about a week ago. As you can see they’re doing quite well.

Brandywine Tomatoes started just a week ago

I’m sure you won’t mind that I’ve taken a moment to sit back and enjoy. Real estate is fun and I’m doing brisk business. But, if you can’t stop and bite into a juicy tomato as a reward, what’s the point?

Tomatoes on a VineI hope you’ve started your own garden and will find time to write about what you dream about when you plan your next move. Homeownership is SUPPOSED to be fun! It’s about more than just numbers. As you can see, I have PLENTY of Brandywine tomato plants. If you want one, please write and I’ll put one aside for you.

Enjoy!

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Posted in Garden | Your Thoughts? (2) »



How to Take the Risk Out of Buying a Home

Thursday, April 1, 2010

Not owning a home is risky behavior

There are far too many buyers sitting on the fence about buying a home. It’s understandable. Home prices peaked in the 2nd quarter of 2006 and have dropped over 30% since then! Who wants to buy something and watch its value plummet like that? However, buying a home is unlike buying anything else. A home is one of life’s necessities like food, water, and clothes on your back. You will always need shelter. Buying shelter today takes the risk out of buying it later.

Prices go up and down at the same time

Buyers understand that ALL home prices move up or down pretty much the same from one house to the next. That’s why they focus on “the market.” They’re always asking, “What’s the market doing? Where are prices heading?” They know that the overall market for shelter is what’s important. What they FEAR is whether they’re paying too much. They’re worried about a profit when it comes time to sell.

The ONLY time home prices matter
is when you no longer need to OWN shelter.

Deciding what to do with the proceeds of a sale

For the most part of your home-owning life, you’re going to move from one home to the next. You’ll exchange one form of shelter for another. Relocate from one area to another. Deciding what to do with the proceeds from the sale of your current home is elementary: You’re just going to plow them into the next home.

So, if you know that all home prices move up and down more or less in tandem, does it really matter where prices are when you sell? If you sell low, you’re going to buy your replacement home low. If you sell high, you’re going to buy your replacement home high. There’s no material difference. Read Here’s a Quick Way to Know When to Buy and When to Sell.

BUT! When you finally move back in with the kids or begin to downsize, THAT’S when you need to consider the proceeds of a home sale. The equity that’s left over should provide a good portion of your nest egg.

The study shows that equity is king

The Wharton School of Business at the University of Philadelphia just released a White Paper entitled “Drowning or Hedging? The Risks and Rewards of Owning a Home.” In it, they studied graduate students who were considering whether they should buy a house while they were attending school. The students knew that they’d be short-term owners in the Philadelphia area and that once school was over, they’d be relocating to a new job or going back home.

The study showed that the students were much better off buying a home as soon as they were able. When they did this, they “locked in” the cost of shelter. The students took away the volatility of the rental market since there is no way to know which way rents were headed. And, since the cost of rent varied tremendously from one location to the next and the students didn’t know where they’d end up, there was no way to “hedge” against sticker shock in their new location.

But, since home prices everywhere move up or down more or less in tandem, the equity they were building helped cushion the burden for the next stage in their lives.

Equity is king. Beware of leverage. Leverage is borrowing to own a home. When you’re over-leveraged with exotic loan programs or you’ve drained every last bit of equity out of your home with second and third mortgages, you’ve left yourself vulnerable to the market forces of homeownership. You’ve seen this with the current crisis in the housing market.

Building equity today minimizes risk tomorrow

The Wharton Study shows that it’s actually less risky to own a home than to not own one. Not “locking in” the cost of shelter is foolish with home prices as low as they are and with interest rates at all-time lows (Read about the cost of money and Great Rates). Throw in some government incentives in the form of tax credits for current homeowners and first time buyers and it’s a no-brainer if you’re in a position to act.

Sitting on the sidelines is not an option for those who wish to minimize the risk of homeownership.

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Posted in Economy, Investment | Your Thoughts? (0) »