John Mulkey, Housing Guru

All the confusing information about the economy and housing market has left potential home buyers scratching their heads and wondering, if this is the best of times or the worst of times to buy a home? Recent news reports have shown charts that demonstrate how renting may be significantly less expensive than buying. Others may point to the dangers of further declines in home prices. What’s a buyer to do?

The answer, may seem complicated as a whole, but is actually quite simple for the individual. If you find the home you need at a attractive price that you can afford, buy if you need to buy. What does that mean? It means that those considering the purchase of a new home must make the decision on whether or not buying is a prudent choice for them; and that’s pretty easy to determine. The following questions will help to guide you in the right direction:

● Do you really need to purchase? Is it possible that renting would be a better choice because of job instability or the prospect that you’ll need to move within a short time? Look at the rentals available and compare the costs of renting to that of owning. With apartment vacancies the highest in decades, and with a large number of rental homes in great locations, renting can be a great option for some; and rents are currently extremely attractive.

● Is your employment secure/income stable? Unless you’re relatively certain of your employment prospects in the foreseeable future, buying a home can be a risky endeavor. With downsizing, layoffs, business closures, and a weak economy, many potential buyers have elected to remain out of the market until the recovery begins in earnest.

● Are you reasonably certain you won’t need more space or that you won’t relocate within the next 3 – 5 years? If you anticipate an increase in the size of your family or if there are other reasons you might need to upgrade to a larger home in the near future, you should purchase for that likelihood. If your financial situation doesn’t allow for the larger purchase, postponing may be the better choice.

● Are your finances in order? Do you have a good credit rating (Click HERE for the real sources of FREE credit reports)? Do you have a regular savings program? Lenders will love you if you do, and the savings may help you to qualify for a better rate. And you may need some of those savings for the down payment or other expenses associated with loan closing and moving.

● Can you afford the home you want? Don’t get caught in the trap of straining your budget. Buy what you can comfortably afford (Click HERE for an easy calculation to help you determine how much you should allocate to a home purchase).

● Are you familiar with the local housing market? It’s imperative that you become familiar with the area in which you plan to live. Look at homes on the market; get an understanding of pricing and value; and evaluate drive times to work, schools, and shopping. You should also research the statistics of neighborhoods in which you’re interested (For links to helpful websites, click HERE).

There are some great bargains available for those who would like to purchase a home, but sorting through the maze of inventory and negotiating the best deal requires the help of a professional. I’d recommend recruiting an experienced real estate agent to guide you in your search. They’re familiar with the market, with pricing, with short sales and foreclosures; and can help you avoid making a costly mistake.

Finally, if you have determined that buying is your best choice, the government wants to help you make that purchase with a tax credit that can be as much as $8,000 for qualified buyers (Click HERE for more information).

For more great home buying or selling tips, visit: The Housing Guru

The January unemployment numbers, released today by the Labor Department, revealed that the “green shoots” have now withered and died. Economists had expected January to show a slight increase in jobs of about 5,000; however, the number reported this morning shows a loss of 20,000 jobs.

With revisions to its annual numbers, the Labor Department also reported total job losses since the recession began to be 8.4 million. And while the unemployment rate dropped to 9.7%, there appear to be few signs that the recovery has actually begun.

The Housing Guru: The one source for all you housing questions

Nine years ago a landmark Supreme Court ruling opened the doors for an eminent domain disaster in a ruling upholding the seizure of a 90 acre tract in New London, Connecticut known as the Fort Trumbull neighborhood. Many recall the controversy, known as Kelo v New London, and the neighborhood’s battle to protect its homes and businesses.

In a sweetheart deal with Pfizer Pharmaceuticals, the city had agreed to use the power of eminent domain to condemn the property for a development that was to include an expansion of Pfizer’s research headquarters, a hotel, condos, and office space. Additionally, the city spent millions razing the existing structures and adding new sewer, water, and utility services; and further agreed to provide $160 million in tax incentives and grants.

But the project was doomed from the outset, having been poorly planned and neither a good match for New London nor Pfizer. The original developer pulled out and the new development was never completed. Now the pharmaceutical giant has announced that it, too, is pulling out of the city and is, in fact, closing not only its new offices, but also the original facility, taking away 1,500 existing jobs. The once vibrant neighborhood has become a wasteland, a monument to the abuse of power.

There is a benefit to this sad story, however. In response to this case many states have passed laws making such seizures more difficult when transferring condemned property to another private party. I would also like to think that this fiasco might cause political leaders and bureaucrats to see the folly of making plans and commitments based solely upon short term benefits, decisions which frequently result in disappointment and disaster; but that’s probably expecting too much.

For more information on the New London case, read: NY Times.

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According to a report released today, home prices continue a slow decline, with November prices dropping more than 5% year over year. As I have described in previous posts, prices will remain unstable unless we are able to constructively deal with the millions of potential foreclosures that await bank action.

This report combined with the recent spike in unemployment claims is just another indication that the recession, notwithstanding reports to the contrary, seems far from over.

The Housing Guru: The one source for all your housing questions

It now appears that the recession may compel more homeowners to downsize. With a growing number having difficulty paying for and maintaining their McMansions, some are looking for smaller more energy efficient homes in an attempt to reduce both their monthly housing expenses and the physical effort required in taking care of larger homes.

Recent studies seem to indicate that both young and old are willing to give up the prestige associated with large, expensive homes in order to gain financial security and personal time. In just the past two years the median home size has decreased by almost 10%. With home sizes having grown by about 50% since the 1970s, many consumers now realize that they really don’t need the extra space; but what they are demanding is a more efficient use of the space they purchase.

And while the increase in first-time buyers and the scarcity of move-ups has skewed the house size numbers, the reality is that the change is likely to remain. Rising interest rates and tightened lending rules will force many buyers to spend less; and the continued concern about rising energy and maintenance costs will result in the production of homes with fewer rooms, less wasted space, more dual function areas, and the elimination of rarely used “formal” areas. Buyers will demand efficiency and practicality, but will also expect imaginative use of space that emphasizes both style and comfort.

Click HERE to view several appealing and efficient home plans and more news on downsizing.  The plan shown includes 3 spacious bedrooms in less than 1900 sq. ft.

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In yet another revamp of HAMP, the administration’s program to help homeowners avoid foreclosure, Treasury is weighing some new options. An article in today’s NY Times reports on some of the methods under consideration.

One of the stumbling blocks that many seeking foreclosure relief regularly report is the problem of supplying documents to their lender; lenders claim homeowners fail to respond to requests for documents, and borrowers claim their lender is losing the documents. Additionally, some at Treasury seems to fear that many of the “liar loans,” those made without full documentation, may have been made fraudulently. In an effort to deal with such no documentation loans and to reduce the overall number of foreclosures, Treasury seems to be suggesting that lenders forgo the documentation process, what some have called liar loan modifications, and move ahead with the process.

Such a maneuver would remove hundreds of thousands of homes from potential foreclosure, but in reality would probably only postpone the losses. Over the past couple of months I have addressed the real issues and what I see as the only viable means to actually save millions of these homes. See the following posts:

Punishing Foreclosure Victims Only Continues the Pain for all of us

Will Housing Experience a Lost Decade?

A Perfect Storm of Foreclosures May be on the Way

An 800 Pound Gorilla Called Negative Equity is Lurking

While the problem is complex, it demands bold action from banks and politicians; to allow it to continue only serves to extend the pain, ultimately resulting in lower home values and the increased risk of great numbers of foreclosures. And while this new attempt may provide a glimmer of hope for struggling homeowners, most are aware that past attempts have been dismal failures. In time, of course, the results will be evident, but time is working against those facing foreclosure, and has already run out for millions; and the clock is ticking for millions more.

The Housing Guru: The one source for all your housing questions

If you are planning the purchase of a resale home, you may be considering the purchase of a home warranty. While home warranties offer peace of mind, the important issue is whether or not you’ll have coverage when you need it. It’s important to understand the home warranty coverage you are buying and its limitations or exclusions.

If having a home warranty is important to you, you should read the policy or brochure carefully. While one company may offer coverage for serious structural defects and mechanical systems, another may cover mechanical systems and appliances, but eliminate coverage for the structure. Make certain that the warranty you purchase or receive covers the items that are important to you.

You should also be aware that what you interpret to be a serious structural defect may not be covered under the terms of your policy. Read the information carefully and understand what is covered. It can be both frustrating and expensive to discover that the coverage you received does not apply to your specific issue.

Home warranties, like coverage on other purchases, vary widely in what is covered, the terms of coverage, and the actual value to a purchaser. The following list should help you compare home warranty policies.

The name of the company providing the coverage

The name of the person to whom coverage applies

The length of the warranty

An explanation of all items covered by the warranty and which items are excluded

Whether or not the warranty is transferrable

Whether or not there is a deductible or base fee for warranty claims

The procedure for filing claims for service

The company responsible for making the actual repairs

The time allotted for responses to claim service

A clear explanation of how coverage disputes are to be resolved

Having a home warranty can be reassuring; and the right coverage can be a godsend if covered problems arise during the warranty period. Also, since the price of a home warranty is small—usually only a few hundred dollars—it’s often possible to have the seller pick up some or all of the cost.

The Housing Guru: The one source for all your housing questions

While news stories, articles, and blogs continue to be written about “Strategic Default” and how those facing foreclosure shouldn’t be allowed to walk away or have their mortgage balance reduced, punishing foreclosure victims only continues the pain for all of us. The problem we face isn’t one of a few hundred or even a few thousand who carelessly spent beyond their means; this issue touches tens of millions of U. S. homeowners, the majority of whom acted responsibly, and with the knowledge available to them at the time. Most thought they were making wise choices.

How can we blame the homebuyer for not seeing the fallacy of never-ending home price escalation? In their recent testimony before Congress, the heads of the big banks said they didn’t see it. Jamie Dimon, Chairman and CEO of JP Morgan Chase said, “Somehow we just missed that home prices don’t go up forever,” an erroneous assumption shared by the U. S. Treasury. And if the “brilliant” minds on Wall Street didn’t see the crash coming, who could expect those on Main Street to have superior knowledge?

Regardless of what Mr. Dimon may have known, few anticipated the intensity of the housing crash or the scope of its reach. It’s time to stop blaming the home purchaser and to accept the only workable solution for both them and for the housing market in general. It’s time to see beyond what we perceive as the “morality” of the solutions for those facing foreclosure, and to look to what solution best serves the country as a whole. And that is to reduce the principal of homes underwater to their current value. Such an action would immediately help to stabilize a large portion of the market, and would protect neighboring homes from further declines in value. It would not affect the bank’s or investor’s equity, for the homes are only worth what they’re worth; and foreclosure sometimes results in below market returns.

Those who speak of the inherent unfairness of such a solution fail to consider the ultimate damage of continued foreclosures, the consequences of which will depress home prices for years. If we’re serious about solving the foreclosure crisis, let’s address the underlying cause—homes worth less than their mortgage.

I’ve recently seen comments from some who said, “I don’t care if my home declines in value, I don’t want to save those who acted stupidly.” And while I doubt that those making such statements really aren’t concerned about future decreases in the value of their own home, I do think they want to punish those who they perceive as taking advantage of the situation. However, the problem extends beyond housing, and millions will continue to suffer until we begin to restore economic order and sanity. We must do something; and the palliative measures of government have demonstrated their inadequacy to bring solutions. What is needed is bold action, from leaders unafraid of the political consequences. Whether it’s legislation to allow for “cram-downs” or forcing banks to lower principal balances on homes underwater, to fail to enact a workable solution is to allow the morass to continue; indeed to perpetuate it.

Finally, in an effort to inject a bit of humor into this otherwise depressing topic, watch the Stephen Colbert video on this topic.

The Housing Guru: The one source for all your housing questions

Okay, so we’re already a month into winter; it’s still not too late to do that winter home maintenance list. On those cold winter days when Mother Nature’s icy breath keeps you indoors, change those smoke alarm batteries if you haven’t done so within the last year, replace your furnace filters, and turn off the water supply to outside faucets if you haven’t yet done so. While some areas of the country have already experienced record cold temperatures and snowfall, spring is still a couple of months away; don’t press your luck and disregard needed maintenance. Here’s a helpful LIST to prod you to action.

The Housing Guru: The one source for all your housing questions

For those considering the purchase of a foreclosure or unoccupied home, the market in most areas offers a wide selection of options. Buyers will find everything from pristine, well maintained, “cream-puffs,” to fixer-uppers, and a few “tearer-downers.” The current housing crisis has created buying opportunities for many who were unable or unwilling to pay the inflated prices that existed before the recession. And while some short sales or foreclosures represent true bargains, it’s especially important to have these homes carefully inspected.

A harsh beginning to winter may have severely damaged the plumbing in those homes without functioning heating systems. And while the water supply in most vacant homes may have been turned off, this year’s unusually low temperatures could still have damaged drain lines, plumbing fixtures, and existing water lines. It’s especially important to do a water test on any home under consideration to insure against possible damages that could cost thousands to repair.

A qualified home inspector will help you avoid the hidden problems that sub-freezing temperatures can create and can inspect for other issues such as; mold, damage from ice dams or leaky roofs, or flooded crawlspaces that may be associated with vacant homes. Those considering the purchase of a foreclosure or unoccupied home must confirm that all systems are functional to avoid the potential for additional expense and disappointment.

The Housing Guru: The one source for all your housing questions