Author: Marlowe Clark

Uneven Recovery Exemplified by Second-Home Demand

Our recovery from the 2020 recession has been described as a K-shaped recovery. Generally speaking, this means that the recovery occurred at starkly different paces for different segments of the population. More specifically for 2020-2021, while wealth decreased for many groups, it actually increased for those who were largely unaffected by the circumstances of the recession — in this case, primarily job losses and lockdowns. Many of those who were able to keep their jobs and continue to work from home during lockdowns enjoyed their reduced daily spending and lower mortgage rates.

This led to a increase in demand across the board, but notably in one sector of the market: vacation homes. Those who were affluent enough to possibly purchase an additional home were encouraged to do so by low mortgage rates and increased savings, and higher-income jobs are actually more likely to be able to be done from home. In California, the trend was first made obvious in October 2020, which saw a 120% increase in second-home demand from the prior year. The trend continued, though, demand for second homes increased 178% between April 2020 and April 2021. Rising prices dampened the effect, but it only slowed when lenders tightened restrictions on mortgages for second homes and lockdowns ceased being much of a factor.

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More: https://journal.firsttuesday.us/second-home-demand-a-symptom-of-californias-uneven-recovery/79471/

Droughts Threaten California Communities

Much of California, especially Central and Northern California, is experiencing a major drought much like the one from 2012-2016. Temperatures are going up and precipitation is going down. While water usage is still below 2013 levels due to lasting changes in water use habits from the last drought, conditions aren’t currently improving. It’s not precipitation levels that directly affect how much water a community receives, though. Some of the communities struggling the most actually have more rainfall than others but are lacking the infrastructure to account for drought conditions, and possibly the money to build said infrastructure.

Speaking of building, the drought is also affecting home construction. At a time when lumber prices are just starting to slip back down, a new threat emerges. And this one hits even the wealthiest of construction companies, who didn’t necessarily mind high lumber prices. Under drought conditions, some areas have placed restrictions on new construction to ensure that they meet water availability standards, and several areas simply never will meet the standards. The city of Marin is considering a move that would effectively ban all new construction for a time — temporarily banning all new water hookups. The legislation isn’t aimed directly at builders, but of course, all new constructions do require water hookups.

Photo by YODA Adaman on Unsplash

More: https://journal.firsttuesday.us/droughts-and-water-shortages-limit-new-development/79484/

The Hidden Costs of Tiny Homes

On average, the smaller a home, the less expensive it will be. So you’d think that buying a tiny home — one under 600 square feet — is going to save you a lot of money. Well, that’s only true if you’re looking at just the total purchase price, which is $52,000 on average. That’s 87% less than the average price of a typical home. However, most tiny homes are actually significantly smaller than 600 square feet, averaging only 225 square feet. This makes them about 62% more expensive per square foot than your typical home.

Of course, price per square foot only matters if you actually need the square footage. But at only 225 square feet, you probably do. For comparison, the typical bedroom is about 132 square feet — more than half the size of an average tiny home. Even the smallest of kitchens is usually just over 100 square feet. That leaves absolutely no room for storage, and you’re going to need to do your laundry at a laundromat. Many tiny homes are also completely off-grid and may even lack a sewage system and utilities. Not only is this highly inconvenient, the expenses can rack up, and they’re costs you aren’t likely to be able to easily recover by selling the home later.

Photo by Elena Mozhvilo on Unsplash

More: https://www.cnbc.com/2021/08/18/tiny-homes-can-mean-big-costs-especially-depending-on-where-you-live.html

Kid Going Away to College? Consider Buying a House

Everyone knows college is expensive. Tuition costs aren’t the only reason. Room and board can also be rather expensive. In fact, it’s quite possible that it would be more than the mortgage payment on a new house. That means it may actually be financially beneficial to just purchase a house for your college kid, instead of sending them to the dorms or campus apartments.

Of course, this depends on multiple factors. Of course you’ll need to take into account the actual cost of room and board as well as expected mortgage payment for the property, but there are other financial considerations as well. You’ll need to be able to afford a down payment, first of all. Are you able to turn it into a profit opportunity by renting out some of the rooms? If so, do you need to hire a property manager? Once your kid graduates, are you going to keep the house for them, sell it, or continue to rent it out?

There are additional considerations that aren’t necessarily even financial. How far away from your kid do you want to live? Maybe you should consider moving with them, if that’s a possibility for you. Is giving your kid the responsibility of owning a house a good learning opportunity for them, or is it just going to result in disaster? Are you sure that they will continue at this school, or is it likely they’ll either drop out or transfer? This option certainly isn’t for every family, but it’s a strategy that most families don’t consider.

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More: https://www.bankrate.com/real-estate/q-and-a-jeffrey-decatur-re-max/

How to Make Your Home Feel Larger

If your home is a bit on the smaller side, it may start to feel cramped once you get all your furnishings and decorations in. You also can’t forget to leave space open for people to walk though. There are a few solutions that can help you make the most of your space without hyper-focusing on space efficiency.

The first is a huge one — decorative storage space. This serves dual purposes by getting clutter off the ground and into a more compact area, without sacrificing aesthetic. You can find both functional and appealing furniture such as ottomans or coffee tables that feature hidden drawers to store things such as the TV remote, coasters, or a few books. Speaking of books, that doesn’t have to be the sole purpose of a bookshelf; it can be used to store any manner of items.

You shouldn’t exclusively focus on ground-level decoration, though. Decorate vertically to save room for foot traffic. These can be things such as paintings, photos, or tapestries, but they can also be functional, such as wall-mounted cabinets, or bookshelves that are tall rather than wide.

Another thing you can change to make your home feel larger doesn’t actually affect your space at all: color. Lighter colors give an illusion of airiness that can make even a small space seem less cramped. Painting every room white or beige, or even light blue or yellow, may not be the best idea unless you don’t have very many rooms. But you can still achieve the same effect by using furniture or décor in lighter colors.

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Mortgage Delinquency Rate Down, But Many Are Serious

Mortgage delinquency rate reached its lowest level since before the recession in June of 2021, at 4.37%. This is down from 7.6% in June of 2020, approximately a 42% decrease. The significant decrease can be attributed to both fewer new delinquencies as well as more mortgage holders catching up on payments.

That’s where the good part ends, though. A delinquency of over 90 days is considered a serious delinquency, and this category accounts for 3.2% of homeowners, or 1.55 million. This is a rather significant proportion given a total delinquency rate of 4.37%. And when forbearance programs end — which is slated to happen very soon, on September 30th — it’s likely that about two-thirds of these will still be behind on payments.

Photo by Dylan Gillis on Unsplash

More: https://journal.firsttuesday.us/1-million-serious-delinquencies-expected-as-forbearance-programs-expire/79179/

Average Credit Score is Increasing

While everyone agrees the pandemic and recession were terrible events, there’s at least one good thing that came out of them: People are paying more attention to their credit. The sudden loss of jobs made consumers realize that in the event of a huge financial crisis, they’re going to be heavily reliant on credit. It also didn’t hurt that the government and media were both more focused on helping people learn to understand and utilize their credit better. As a result, the average FICO score increased by 8 points over the past year, up to 716.

There are a few ways of improving your credit score that people surely have been taking more advantage of. During lockdowns, some people had fewer expenses, allowing them to instead use their money to ensure that they made payments on time instead of letting them become late or missed payments. The stimulus bills also helped, letting people pay down existing debt in addition to not accruing additional debt. To top it off, the percent of hard credit inquiries, which temporarily decrease credit score, has decreased by 12.1%. A large part of this is because fewer new lines of credit are being opened, since a hard credit inquiry is required to open one.

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More: https://www.cnbc.com/select/heres-how-the-average-american-increased-their-fico-score-last-year/

Builders Still Skeptical Even as Lumber Prices Drop

Builder confidence plummeted in April 2020 after the start of the pandemic and recession. As time went on, they slowly regained confidence since demand was high. But demand was too high, and lumber prices accelerated upward, causing builders to hesitate again. Builder confidence is below the levels from the start of 2021, though higher than it was in mid-2020.

Now, lumber prices are starting to fall back down. But the reason for that is decreasing demand and rising interest rates, the exact opposite of what caused prices to rise in the first place. With demand decreasing and prices now on a downturn, builders still aren’t sure whether it’s a good or bad time to buy lumber. They’re expecting more vacancies, which means less need for new construction.

Photo by Gene Gallin on Unsplash

More: https://journal.firsttuesday.us/lumber-prices-drop-builders-remain-cautious/79400/

Mortgage Rate Surpasses 3%

While mortgage rates are certainly not high, we can no longer safely call them low. The average rate for a 30-year fixed conforming loan is considered low when it’s below 3%. They’ve been slowly increasing. In the first half of August, it barely qualified at 2.99%. Now, the number sits at 3.06%.

As a result of increasing mortgage rates, demand for refinances has also decreased, dropping by 5% as soon as the rate passed 3%. Applications for purchase loans are less sensitive than refinance applications, and dropped only 1%. Despite the decreases in number of mortgage applications, the total dollar volume is still high, as a result of high prices fueled by heavy competition.

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More: https://www.cnbc.com/2021/08/18/mortgage-rates-hit-highest-level-in-a-month-and-weekly-demand-drops.html

Be Aware of Renovation Financing Options

Most people want to buy a home that’s move-in ready, but if you don’t mind buying fixers, there are a couple of finance options for you. This doesn’t mean just anyone can renovate a fixer — there’s a lot that goes into it, and you need to make sure you have the know-how or the money to pay someone who does. It can be expensive, and the payout is in the return on investment. If that’s much later down the line because you also plan to live there, that’s okay if you have the money, but it’s important to keep that in mind.

If you don’t have the money, you still need at least a decent credit score. There are two kinds of mortgages designed with home renovation in mind. The 203k Mortgage, one type of FHA loan, is meant for a vast array of different construction projects. In order to secure one, though, you’ll need a credit score of at least 580. Fannie Mae has a loan type specific to renovations, called the HomeStyle Renovation Loan. The max borrow amount is 50% of the total value of the home, and it’s possible to borrow against projected equity. It requires that the renovation be completed within 12 months, and necessitates a credit score of 680 or higher.

Photo by Charles Deluvio on Unsplash

Buying New May Beat Heavy Competition

If you’re struggling in the current competitive market, you may want to consider buying a new construction home. This isn’t going to be for everyone — new constructions are often more expensive and also come with additional up front costs, since it usually requires a 3% building deposit. Not to mention if you’re not hurting for money, competitive markets are going to be less of a problem for you. Still, if you play your cards right, a new construction home could be a great deal for you without much hassle, and is a much better investment later down the line as well.

Don’t be afraid to negotiate on a new construction home. It’s true that in a competitive market, you may be inclined to bid high to get the best chance at your offer being accepted. New construction is a much smaller market, and your chances are still good even if you bid lower. Alternatively, many new construction negotiations revolve around not price adjustments, but rather the construction materials and appliances. You still want to get ahead of the competition, though; builders aren’t as willing to make drastic changes if they’ve already sold multiple similar homes in the same neighborhood with their default materials.

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Keep Up To Date With Bathroom Design Trends

Everyone wants their bathroom to be a place of comfort with a calm atmosphere. If you’re planning to renovate your bathroom before selling, or just want your guests to feel at home, consider current trends in bathroom design.

There are a few trends popping up recently. The new thing for sinks is the floating vanity. It’s not actually floating — it just may look like it is, since it’s sitting on top of a raised shelf instead of a large cabinet or a tall pillar. Thematically, nature is in. Botanical wallpaper, colorful flowers, bright leaves. And for those of you who want your bathroom to be your own private sanctum, and aren’t planning to show it to others, you can customize floor or shower tiles with your own prints.

Photo by intan Indiastuti on Unsplash

Planning to Sell? Don’t Forget About Curb Appeal

Sellers do a lot of things to get their homes ready to show. Tidying messes, repainting walls, fixing deferred maintenance, getting their homes professionally cleaned, hiring photographers or videographers, and sometimes staging their home. What many of them forget to think about is the outside of their home. This is a huge mistake, as the outside is the first part of the home a prospective buyer will see when they arrive.

The first thing you should do is clear the area of objects lying around such as tools or toys, so that you have a clear space to work with. If you have a garden, remember to tend to it by removing weeds and pruning plants, or even getting fresh new plants. Be sure to replace mulch as well. If you have a lawn or shrubs, make sure they’re trimmed. Make sure your sprinklers are working and angled properly as well. Clean out your pool if you have one. Once everything is cleaned up, make sure to sweep any clippings and debris and wash down the driveway and walkways.

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Arbitration Clauses Falling Out of Favor

There are three primary ways to resolve disputes in business transactions, including real estate transactions: arbitration, mediation, and litigation. Arbitration involves no court activity at all except in choosing a neutral third party, and in fact courts must abide by arbitration even if the decision is erroneous. Mediation is similar to arbitration in that the initial decision is not made by the courts, but it allows to courts to intervene if a resolution is not found. Litigation involves a lawsuit in court.

Historically, businesses have favored arbitration since it was considered the quickest and cheapest method of dispute resolution, and having an arbitration policy protects them from many lawsuits. Now, businesses such as Amazon are quietly changing their policy. Arbitration has turned out more costly than they expected — primarily because they’ve been losing the disputes, in which case they are required to pay both sides. It’s also not always quick. And when the businesses are losing, they’re also not too hot on the decision being legally binding despite not necessarily being legally correct. Instead, mediation is turning out to be a cheaper, fairer, and sometimes quicker method of resolving customer disputes.

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More: https://journal.firsttuesday.us/industry-leaders-are-cutting-arbitration-provisions-and-they-arent-needed-in-real-estate-either/79078/

Market Has Begun to Slow

After an intensely competitive market, things are finally starting to slow down, with pending sales dropping by 12% nationwide since May. We’re not quite sure if that’s good or bad, though. Part of it can be attributed to seasonal variation — the market does start to slow heading into Q4 — but it never slows this much. It’s unclear whether the steep dropoff is because the market was already incredibly hot, or because buyer demand has lost its momentum. Either way, 2021 was decidedly not a normal year for the real estate market.

And it will continue to not be a normal year. Foreclosure moratoriums have ended, but people are still protected from evictions until September 30th. After that, expect a huge increase in supply as a result of distressed or forced sales. The good news is that rising supply will prompt decreasing prices. But demand is already decreasing, and we aren’t sure yet if it’s going to continue to decrease. People are going to be forced to sell, but may not be able to find buyers. Experts expect that demand will still be high enough in California to soften the blow, and we shouldn’t see prices plummet too far until 2023.

Photo by Markus Winkler on Unsplash

More: https://journal.firsttuesday.us/pending-sales-decline-prices-are-next/79156/

Factor Climate Risk Into Your Home Purchase Decisions

Though certain areas have always been at higher risk for certain types of natural disasters, only since climate change have people heavily prioritized climate risk as a factor in their search. Wildfires, droughts, and floods are becoming much more common, so people are avoiding these areas more. People don’t necessarily know how to research which areas are high and low risk, though. Fortunately, one real estate service, Redfin, is noticing the need and has begun publishing climate ratings.

The ratings aren’t from Redfin — they’re from ClimateCheck, a company which assesses future risk and change in risk on a scale of 0-100. They start with several different global climate models to project risk on a global scale. Then, they localize the data to specific areas by filtering the global risk through local weather patterns. ClimateCheck is now also sending that data to Redfin so that it’s easily accessible for people searching for a home. Of course, you can also visit the ClimateCheck website directly at climatecheck.com.

Photo by Landon Parenteau on Unsplash

More: https://press.redfin.com/news-releases/news-release-details/redfin-publishes-data-climatecheck-help-consumers-understand

Most Americans Embrace Digital — As Long As It’s Secure

While it may seem like it was pandemic restrictions that forced the US further into the digital era, most people are actually not uncomfortable with it at all. In a recent survey, 81% of respondents trust online transactions. They don’t necessarily trust all online transactions, though, and they disagree on what exactly makes a transaction feel safe to them.

Predictably, some of the older generations aren’t aware of all the options available to them, such as online notorization services. Perhaps not so predictably, the older generations are actually the most likely to feel safe with digital forms of security. These include two-factor authentication (53% of older respondents), security questions (61%), and PINs (49%). The younger generations, on the other hand, would rather talk to an actual person (53% of younger respondents), even if the discussion is held remotely by phone or online, and don’t want to go through too many online steps to make a transaction go through (22%).

Photo by FLY:D 🔶Art Photographer on Unsplash

More: https://www.notarize.com/blog/notarize-survey

Work-From-Home Upgrades Include Significant Remodels

We’ve mentioned a few times that people now working from home more often have been making purchases to make their home more comfortable to live in. This doesn’t merely extend to smart technology, entertainment centers, or upgraded appliances, though. Home renovation projects increased by 25% in the first half of 2021.

36% of people renovating are trying to make better use of the space their have by remodelling rooms, including basements and attics. In many cases, this is probably to create a home office space. 12% have decided they want an entirely new room and are building an addition. 17% are aiming more for the comfort and entertainment aspect, and have opted to add a pool or hot tub. Such renovations are likely for personal reasons as a response to the work-from-home model, but they will also add value to the home later down the road.

Photo by Anna Demianenko on Unsplash

More: https://www.prnewswire.com/news-releases/selective-study-finds-25-increase-in-major-home-renovation-projects-in-first-half-of-2021-compared-to-end-of-2020-301347507.html

Bay Area Wage Growth Prompts Misleading “Affordable” Label

In San Francisco and surrounding areas, wage growth has recently outpaced home price growth. Some real estate analysts are now calling the area “affordable,” since prices are dropping relative to wage growth. That label discounts a few rather important factors, though.

First, the majority of wage growth in the area was for high income jobs. These people were already homeowners with stable, high-paying careers. Wage growth doesn’t actually help them purchase a home, it just gives them more disposable income — which they aren’t necessarily lacking.

Second, only in San Francisco itself are home prices actually dropping. In the rest of the region, they’re still going up. And throughout the entire region, they remain exorbitantly high. The Bay Area is one of the most expensive regions in the world.

Third, wages actually may not have gone up at all overall when factoring in unemployment. Unemployed people aren’t considered to have an average wage of $0.00. They’re just not counted in the data. Therefore, the unemployment rate doubling to 5.45% in May from pre-pandemic numbers may have caused average wages to become artificially inflated. Not to mention that no home is actually affordable to unemployed people.

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More: https://www.mercurynews.com/2021/07/24/have-bay-area-homes-become-more-affordable/

Work From Home Prompts Appliance Shortage

Inventory may be low, but housing isn’t the only thing in short supply. Once work from home became more popular, homeowners started looking to upgrade their homes since they would be spending more time there. Part of that was updating their appliances and buying new furniture, particularly stoves and grills because homeowners would be cooking at home more often. Combined with a decrease in manufacturing productivity due to labor shortages, appliances and furniture are selling out quickly.

While increased new construction is a potential solution to low housing inventory, it’s definitely not going to help the appliance shortage. Even with construction being low, the increased demand for already existing homes is stretching the appliance supply thin — and new constructions would require all new appliances. It’s even affecting the timing of real estate transactions. Closing time is being delayed because the new owners want the place to be move-in ready when it closes, and they aren’t able to get their hands on appliances and furniture.

Photo by Serge van Neck on Unsplash

More: https://www.bankrate.com/mortgages/pandemic-appliance-shortage/