How Parents Can Help Their Kids Become Homeowners

With today’s economy, buying a home can be difficult. For first-time buyers who do not have a strong financial background, it may be impossible. Parents want to see their kids be successful and one of those indications of success is being a homeowner.

Help with the Down Payment
Your child may have excellent credit and a reliable income, but if they do not have cash for a down payment, they will have a hard time getting a home loan. Most banks will not extend a hundred percent credit on the cost of the house today. Requirements for the down payment vary from 3 ½ percent to 20 percent, depending on whether you get a traditional loan or an FHA loan. If you can afford to pay the down payment for your kid, they will be able to get a home loan with good credit.

Pay the Closing Costs
Another cost that requires actual cash in most situations are the closing costs. They are lower than the down payment, but can be more than your child has available. If you cannot afford to assist with the down payment, paying a portion or all of the closing costs can be a tremendous help.

Get the Loan Yourself
One option to help your child is to buy the home for them and let them make payments to you. You will probably get a better rate than your child and lower payments, which will make it easier for them to pay back the loan. One consideration to keep in mind is your ability to continue to make the payments if your child cannot pay you back. It will be your credit that will be affected by missed payments.

Become a Co-Signer
If your child can qualify for a home loan with a co-signer, you can help them without spending any money. Your child will still be responsible for the payments and it will help their credit as they make payments on time. The danger is that if they default on the loan, it will damage your credit unless you take over the payments.

Give Advice
While they may not always appreciate unsolicited advice, giving them information about buying a house will put them ahead of other buyers. Volunteer to go with them to look at houses and point out things they should consider. This includes things like the cost of inspection, checking the foundation, finding out the age of the roof, and other parts of buying a home that they may not think of.
Offer to go with them to a real estate agent or mortgage broker. Having an older adult present will help keep them from being taken advantage of, and you can explain things to them that they may not think to ask.

Your child can become a homeowner even in today’s housing market with a little help from you. Your knowledge and experience can be the most valuable gifts you can give to your adult child.

What’s in Store for the Housing Market in 2012

2011 was supposed to ratchet up steady, if not, robust growth in the US economy. However, several economic and geo political events tripped up the economy during the year that have left would be home buyers dazed and confused about jumping into the housing market.

Looking in the Rearview Mirror: 2011

Here’s what we know, 2011 has been wrought with uncertainty and unexpected shocks that has hobbled output in the US and around the globe and caused a huge crisis of confidence for consumers, investors, and businesses alike. The list of wildcards is long: the DC midterm elections, the change of power in the House, the Japanese earthquake and tsunami, the Arab uprising, the oil price shocks, the European debt crisis, the battle over debt ceiling, the downgrading of the US long-term debt, and the fallout with the volatility in the stock market. All of which have left output through the first half of the year below the growth rates that accompany a recovery. The probability of a double-dip recession has gone up and has caused economists far and wide to downgrade their outlook for this year and next.

What Does Next Year Have in Store For Housing?

Here is what C.A.R. is forecasting for 2012:

  • While the probability for a double dip recession is higher, the most likely scenario is for a continuation of the slow-moderate growth we have seen for the last few years. The outlook is for modest but positive growth with GDP coming in at 1.7% in 2011, 2.0% in 2012.
  • We are moving forward, albeit bouncing along the bottom for most of 2011 and we can expect the same for next year, with a flat sales forecast for 2011/2012 (-0.1% year-to-year loss in 2011 and 1.0% gain in 2012).
  • Prices are expected to come in 4% below 2010 levels and should show a modest gain in 2012 (+1.7% year-over-year).

Overall, we’ve seen uncertainty and a lack of urgency put a damper on the housing market in 2011.

Hopefully, 2012 will prove less uncertain and could even show signs of urgency as current prices and mortgage rates are phenomenal and will not stay this low forever.

Buying a Home Today: Rates, Prices, and Loans

Rarely has housing affordability in California been as high as it is now. The statewide median home price in California is at 2001-2002 levels and mortgage rates hit their lowest level ever in 2011. Yet, the media reports that households are having trouble obtaining loans and the share of first-time buyers in the market is much lower than expected, given such low prices and rates. Which begs the question, is this measure of housing affordability accurate?

Homes Are Very Affordable Now
C.A.R.’s Housing Affordability Index (HAI) has been around since the 1980s, and was intended to be a predictive measure of housing, showing households’ ability to purchase a home at the prevailing market prices, rates, and incomes. The HAI assumes a 20 percent down payment, the median price for a geographic area (e.g. $292,120 for California’s 3rd quarter of this year), and the corresponding monthly payment for principal, interest, taxes and insurance should account for no more than 30 percent of a household’s income.

The latest index reading was 52 for the 3rd quarter, meaning that 52 percent of California households have sufficiently high incomes to afford the median priced home. The HAI is up from all of 2011 when it hovered just above 50, just shy of the historic high of 55 hit in 2009. The current HAI translates into 52 percent of households are able to purchase the median priced home given the underlying assumptions of price, rates, and income.

Provided You Can Get The Loan
Although this metric shows that affordability may be near record highs, it does not account for underwriting standards implemented by lenders and banks. Today, there are extremely tough standards being placed on mortgage applicants by lending institutions. According to research from the National Association of REALTORS®, credit scores for approved loans in the last few years have been about 40 points higher than normal. This is hindering the ability for many households, especially first-time buyers, to take advantage of the great affordability of housing at this time. In similar regard, the HAI did not account for the extremely lax lending standards that were the norm for most of 2000s decade, which consequently led to record low affordability at a time when home sales were through the roof. The recent lending environment is overriding the predictive value of the HAI, making it a less dependable indicator as it once was. Although it may be less reflective of current market conditions, the HAI does give a historical perspective and shows how California real estate is relatively cheap investment right now.

For those who can qualify, there is a rare opportunity to capitalize on the discounted price levels and historically low mortgage rates over the next few months.

Design Inspiration: Amazing Glass Houses

The latest in design inspiration is houses that are made entirely of glass. Take a look at the houses designed by Carlo Santambrogio and Ennio Arosio. They have created houses that are made completely out of glass, and are entirely see through. To complement the simplicity of the house, they have created a furniture line. They describe their designs as, “Simplicity is when, in the act of creating the dwelling, matter becomes transparent, a medium for aesthetic values, the stage and theater of representation.” Not only do glass houses have a modern simplicity about them, they also allow the sunlight in, and people inside always have a great view no matter where they stand.

Not everyone may want to live in a house that is made totally of glass though. For those who love the idea of walls (or just can’t find the sledgehammer to knock them down), here is how you can get the same look in your own home. These ideas combine the simplistic idea of glass, one that can be recreated in any home.

-Consider adding a larger window or a window seat. This will give you the feeling of a large area to look out of, but will cost significantly lesser than a whole house made of glass. Using energy efficient window panes will also help keep the elements out. Just removing the section between two smaller windows and adding in a larger window will provide a unique look and a great view.

-Add a small greenhouse (or glasshouse as they are called across the ocean) to your backyard so you get the feel of a glass house, without having to move. Some greenhouses can even be bought pre-built. This can be a great place to grow a garden, or if you want to create a hideaway, you can just add furniture.

-If you are up for a larger project, add a sunroom to your home. One room made entirely of glass will feel luxurious.

-Open up your windows by decorating them with curtains that can be pulled back or easily taken out (like on a rod). Curtains that make use of only a small amount of space in the window (like shades that snap up) are also great. For rooms that don’t require privacy, forgo the curtains and shades. When you take away the curtains, you may find the entire wall section feel bigger and taller, and the window itself will look bigger.

-Use the delicate nature of glass when you decorate. Glass houses look simplistic and delicate (but are very strong). They also use sharp edges and clean lines. Use these elements as you decorate. Instead of furnishing your house with an ornate floral couch or a heavy looking leather sofa, opt for a couch that is simplistic in design and square in shape. Take out wooden cabinet doors and instead use glass ones. Add glass, but add it in unique ways.

Home Prices Rise for 5th Consecutive Month

The most recent data from the S&P and Case-Shiller index shows that home prices rose for the fifth consecutive month. This index looked at twenty major cities and found that home prices rose 0.2% in August. However, prices are still lower on a year-over-year basis by 3.8%. David Blitzer, a spokesman for S&P, said, “Even though the [year-over-year] rates are improving, national home prices are still below where they were a year ago.” For people who are looking to sell their home, a rise in home prices could be good news; not so, however, for those looking to buy a new home. This could be good for the overall economy, but it is still unclear what home prices will do in the following months.

Certain areas are doing better than others. Ten off the twenty metro areas that were covered by the Case-Shiller index saw a rise in home prices. Home prices rose 1.6% in Washington, D.C., and 1.4% in Detroit and Chicago. However, other areas saw a fall in home prices; 2.4% in Atlanta, 0.4% in Los Angeles, 0.3% in Las Vegas, 0.2% in San Diego, and 0.1% in San Francisco and Phoenix. As long as the overall economy stays weak, home prices will continue to hover around their current levels. When the economy is weak, there are more foreclosures. Lending standards are also strict right now, and unless they ease up, there may not be a big change in the price of homes. The changes that were made to the Home Affordable Refinance Program (HARP) by the Obama administration are unlikely to have an effect on home prices. The main focus of the changes that were made to HARP was to help people stay in their present homes instead of buying new ones. These changes allow borrowers to refinance at a lower rate, which has the potential to lower monthly house payments. While this may provide a boost to the economy, it is unlikely to help those people who are looking to buy a new home. It may help prevent defaults and foreclosures, which means there are fewer distressed homes on the market pulling down the value of those and other homes in the area.

The best thing that could happen to the housing market would be a boost to the economy and job market. Once people are able to find jobs, and the unemployment rate decreases, people will start to feel more financially secure and confident. As money is spent, the economy will also receive a fillip. People will also feel that they have enough money to qualify for and purchase a home. Analysts are anticipating home prices to continue to drop though. The main reason is that more distressed houses will come onto the market and sell, which tends to bring down the price of homes overall. If that happens, home prices could reach a new post-bubble low since 2006.

What to Expect with Home Prices in the Next Few Months

California’s median home price has shown some welcome stability in recent months, hovering around the $290,000 mark since March. But what is likely to happen over the rest of the year? Are there opportunities between now and December 31?

Seasonal Change in the Mix of Sales

The statewide median price is typically softer at the end of the year and in the early months of the year, falling 1.5 percent from the third to the fourth quarter and 1.1 percent from the fourth to the first quarters respectively. By contrast, the median price increased by an average of 6.2 percent and 1 percent in the second and the third quarters. The seasonal softening of home prices is due partly to the change in the mix of sales throughout the year. Homes in the lower price tier (below $500,000) typically make up a bigger portion of the total annual sales in the first and the fourth quarters of a year than they do in the second and the third quarters. At the same time, shares in the higher price tiers (above $500,000) are generally higher in the second and the third quarters than they are in the first and the fourth quarters.

The market appears to be following a similar trend for the first three quarters of the year. Whether the mix of sales will shift in favor of lower-price tier in the fourth quarter remains to be seen.

Downward Movement in the Sales-to-List Price Ratio

The sales-price-to-list price ratio (SL ratio) also shows a seasonal trend that may shed some light on the direction of home prices for the upcoming quarter. The ratio typically begins the year at a relatively low level, climbs up through the busy season to a peak around June or July, and trends downward for the rest of the year. The SL ratio in
2011 appears to be tracking the historical trend so far this year, and it has been declining in the last couple months since it peaked in July. This downward trend could be an indication that the statewide median price will taper off at the end of the year, and a quarter-to-quarter decline in median price is likely for the fourth quarter in 2011.

Given the typical seasonal softening of home prices and the near-record low levels of mortgage rates, the off-peak months are an opportune time for potential buyers to find extra value in the market.

What’s in Store for the Housing Market in 2012?

2011 was supposed to ratchet up steady, if not, robust growth in the US economy. However, several economic and geo political events tripped up the economy during the year that have left would be home buyers dazed and confused about jumping into the housing market.

Looking in the Rearview Mirror: 2011

Here’s what we know, 2011 has been wrought with uncertainty and unexpected shocks that has hobbled output in the US and around the globe and caused a huge crisis of confidence for consumers, investors, and businesses alike. The list of wildcards is long: the DC midterm elections, the change of power in the House, the Japanese earthquake and tsunami, the Arab uprising, the oil price shocks, the European debt crisis, the battle over debt ceiling, the downgrading of the US long-term debt, and the fallout with the volatility in the stock market. All of which have left output through the first half of the year below the growth rates that accompany a recovery. The probability of a double-dip recession has gone up and has caused economists far and wide to downgrade their outlook for this year and next.

What Does Next Year Have in Store For Housing?

Here is what C.A.R. is forecasting for 2012:

  • While the probability for a double dip recession is higher, the most likely scenario is for a continuation of the slow-moderate growth we have seen for the last few years. The outlook is for modest but positive growth with GDP coming in at 1.7% in 2011, 2.0% in 2012.
  • We are moving forward, albeit bouncing along the bottom for most of 2011 and we can expect the same for next year, with a flat sales forecast for 2011/2012 (-0.1% year-to-year loss in 2011 and 1.0% gain in 2012).
  • Prices are expected to come in 4% below 2010 levels and should show a modest gain in 2012 (+1.7% year-over-year). Overall, we’ve seen uncertainty and a lack of urgency put a damper on the housing market in 2011.

Hopefully, 2012 will prove less uncertain and could even show signs of urgency as current prices and mortgage rates are phenomenal and will not stay this low forever.

10 Reasons Why Real Estate is the Best Investment on the Planet

It’s been a rough couple years for real estate. As millions of Americans struggle to make payments on mortgages worth more than their homes, it’s easy to declare real estate an imprudent investment. However, the collapse in home values experienced in the last couple years owes more to the off-the-rails lending standards of the mid 2000’s than any longterm investment trend. The fundamentals of the market are still in tact, and real estate is still the best long-term investment on the planet for individual investors. Here are ten structural advantages to real estate investing that do not exist for other investment vehicles.

Investment Partner

The average homeowner has a downpayment of about 10% of the cost of the home. This means that 90% of the initial investment comes from an investment partner (your mortgage lender). Essentially, this means that your investment will appreciate ten times faster than if you just used your own money. Consider this scenario. You have $20,000 to invest in the stock market. You pick very wisely and your stock appreciates 10% in the first year to $22,000. Now, consider what would have happened if you invested that same money in a $200,000 home, which appreciates at 10% in the first year. This home is now worth $20,000 more than you paid for it. Your initial $20,000 investment is now worth $40,000. You have made $18,000 more by purchasing a home, even though both investments appreciated at the same rate. It should be said that the reverse is true as well. If your home depreciates 10%, you lose your entire $20,000, while you would only lose $2,000 if you had purchase a stock that depreciated at the same rate. This is where historical context becomes important. In the last 25 years, homes have appreciated 21 times and depreciated 4 times. In other words, there is a 5:1 chance that investing in real estate will make you substantially more money than investing in stocks.

Tax Credits

When you purchase a home, a large portion of the interest you pay on your mortgage is tax deductible. In other words, the government redistributes money from renters to owners. These tax savings can be substantial–thousands of dollars a year. This is one of the reasons why homeowners accumulate wealth at a faster rate than renters.

Insurable Investment

If you invested in BP one week before the oil spill, you lost 50% of your investment overnight. You cannot insure your investment against poor judgement or freak accidents. On the other hand, a home is endlessly insurable. You can insure it against fire, flood, tornados, earthquakes, burglary, even financial hardship. No matter what the future brings, you can rest easy, knowing that if something does go wrong, you won’t be stuck with the bill.

Forced Savings

Millions of Americans struggle to build up their savings accounts. Some lack the discipline, but millions more simply don’t have any extra cash lying around at the end of themonth. A home loan acts as a forced savings program. Each month, when you send in your payment, you are accumulating more equity in your home. This money can be accessed through a second mortgage or a reverse mortgage. You can use this money to pay down medical bills, send your children to college, or travel the world.

An Investment You Live In

Every investment comes with its own little perks. Disney shareholders are awarded free entrance into Disneyland on special shareholder days. When you buy a home, you miss out out on these little perks, but you get one big one: you get to live in your investment. As perks go, you can’t do much better than that. And since there is really no way to get around paying for housing (either rent or mortgage), the question becomes: do you want your monthly housing budget to evaporate the second you send it to your landlord or would you like to have those payments slowly build up equity in a lucrative investment?

Stable Investment

Most investments are theoretical and speculative. An average growth stock will be valued at about 30 times its yearly profits, which means it would take that stock 30 years to realize the value on which the stock price is based. This is why the stock market is so volatile when compared to the housing market. A slight downgrade in a single quarterly earnings report must be compounded 30 times to correctly update the speculative value of the stock. A property, on the other hand, is valued based primarily on the current practical value of the home and its location. There is obviously speculation involved with any investment (how else would one explain the housing bubble of the mid 2000’s?), but it is much more conservative in the housing market. You will never see a home appreciate or depreciate 10% in a single day, but stocks experience daily swings of 10% or more all the time.

Certainty and Control

As a renter, you never have complete control over your living arrangement. Your landlord can raise rent, make repairs or improvements that don’t reflect your priorities, and demand a certain lifestyle (no pets, no overnight guests, etc.). Furthermore, unless you have a long-term lease, your landlord could ask you to move out with only 30 days notice. Imagine being asked to leave right before the holidays or before your child’s new school year begins. As a homeowner, you have complete control over your home life. With a 30-year fixed mortgage, you know exactly how much your monthly payments are going to be for the next thirty years, and you can plan your life accordingly. More importantly, you are not subject to the whims of a landlord who may not share your family’s priorities.

Made in America

As more and more jobs are outsourced to India and China, American workers feel more and more vulnerable. It’s not just the cheap manufacturing jobs. Engineers, computer scientists, and technical professionals are on the chopping block too. In this context, buying a home is a true act of patriotism. Nearly all of the jobs associated with buying and selling homes are impossible to ship overseas. Real estate is local, and you can rest assured that the agents, brokers, lenders, inspectors, appraisers, and movers who manage your transaction will be American workers paying taxes and promoting growth in the United States.

Make Your House a Home

As a renter, you are typically not allowed to make any substantial improvements or alterations to your landlord’s home–the place where you spend most of your time. This can be tremendously frustrating and limiting to your lifestyle. When you own, your home can be completely customized to your family’s lifestyle. For instance, if your son is going out for the high school basketball team, you can install a basketball hoop in the backyard. It’s those small, but meaningful adjustments that make a house feel like a home, and those customizations are only available to owners.

Better Communities

Research shows that homeowners (and their children) get better grades in school, volunteer more frequently at local charities, and are even less likely to commit a crime. Homeowners feel a sense of pride in their community and take responsibility for its wellbeing. Buying a home is one of the best ways to become a more productive and responsible citizen. In fact, high home ownership rates within a community have a direct correlation to increased health, wealth, safety, and happiness.

Real Estate Reader

Easy Ways to Make the Home Buying Process More Enjoyable

When you work with a lot of buyers, you begin to notice how differently buyers can approach the process of buying a home. Some view the process as a chore and feel stressed out throughout the transaction. Others genuinely enjoy the entire process. Here are a few practical tips to ensure that you find yourself in the latter category.

Clear some time
If you are trying to look at homes on your lunch break and signing contracts between the PTA meeting and little league practice, you will have a hard time enjoying the process. Give yourself some time to get involved in the process and you will enjoy it a lot more.

Focus on the why
The process of buying a home can be emotionally unpredictable. If your offer is rejected or the inspection reveals expensive damage, stay positive by focusing on the reason you started your home search in the first place–to build a better life for your family, to live a more active life, to retire in style, etc. This will help keep
momentary setbacks in perspective, and reenergize you when you need it most.

Communicate
During a transaction, communication with your agent is key. We’re here to make the process as fun and comfortable as possible for you. The more you tell us what you like (and don’t like), the easier it is for us to tailor the process to your preferences.