Archive for the 'Creating Equity' Category

Many first-time home buyers are intent on getting the best deal possible – not a bad strategy at all.  But many buyers forget that “the best deal” depends both on house price and mortgage rate (unless you’re one of the lucky few who intend to pay all cash).  Remember this handy little equation: For every increase of 1 percentage point in mortgage rate you can afford 9% less in home price.  Let’s do the math:  Say you’re shopping for a $500,000 house in South Orange, NJ today but you feel that if you wait another 6 months the price might drop and you’ll be able to get this same house for $475,000.  But what if in this same time period rates go from 4.75% to 5.75%?  Now you can only afford a $455,000 house so that $500,000 house that you thought would drop to $475,000 is now beyond your budget.  Bummer!  Although my crystal ball is in the shop at the moment, I would bet that interest rates will go up before home prices come down a whole lot.

The Washington Post reports that rates for a 30-year, 20%-down fixed-rate mortgage are the lowest they have ever been since Freddie Mac started following rate changes in 1971. As of last Friday, 6/25, the average rate is  4.69%, down from 4.75% the week before and more than 5% a year ago. Rates for a 15-year, fixed-rate mortgage have gone even lower, as low as 3.875% (compared to 4.89% last year).

The Post explains that mortgage rates are dropping

because investors, nervous about global economic stability and a volatile stock market, are plowing their money into mortgage securities backed by Fannie Mae and Freddie Mac, assets that investors perceive to be relatively safe bets.

But despite the great terms, consumers are becoming less and less interested in buying houses and applying for mortgages. The end of the tax credit in April combined with shaky employment and stagnating wages have led to a steep drop in home sales, and a corresponding decrease in mortgage applications. While some people are still in the market to buy a home, the numbers are reduced and the lower mortgage rates are not working to attract those on the fence. Michael Fratantoni, a vice president at the Mortgage Bankers Association, says that consumers at this point are used to fairly low mortgage rates, and do not therefore see the 4.69% rate as a reason to commit to a mortgage if they are not otherwise prepared to.

However, for those who already have mortgages, now is an excellent time to refinance, and indeed, refinancers make up a whopping two-thirds of all mortgage activity. For those who can, refinancing is a great option, but not everyone who wants to will be able to, given that house prices have dropped and their own credit history might not fit the more stringent qualifications mortgage lenders have adopted since the subprime mortgage crisis.

If you are reading this, you are probably one of the 90% of buyers who searched for a home online this year.  According to the National Association of Realtors only 37% performed this activity 10 years ago.  Here are 7 stats that have changed – or not changed over the past decade:

1. 1999: 37% of buyers searched for a home online. 2009: 90% of buyers searched for a home online.
2. 1999: median home value is $137,600. 2009: median home value is $172,600
3. 1999: 82% of buyers purchased detached, single family homes. 2009: 78% of buyers purchased detached, single family homes.
4. 1999: 46% of buyers choose suburban neighborhoods. 2009: 54% of buyers choose suburban neighborhoods.
5. 1999: 68% of buyers were married couples. 2009: 60% of buyers are married couples.
6. 1999 and 2009: the median age for buyers was 39.
7. 1999 and 2009: “neighborhood quality, affordability, and convenience to work and school have consistently been top priorities.”

I bought my Montclair home just over a decade ago –11 years to be exact– and it has doubled in value, current market conditions notwithstanding.  Happy to be living here in Essex County, NJ and not where the median home value has increased by a mere 25% (see #2, above).

(Lani Rosales, December 31, 2009, Agent Genius Blog)

We have a saying among real estate agents that  “Kitchens sell houses.” At the mere mention of the words “granite” or “stainless steel,” buyers flock to a new listing, imagining themselves preparing home-cooked meals for the family or having friends gather around the “island” while the host prepares a gourmet meal and offers a little kitchen theater.

So powerful is the pull of the granite kitchen that it can compensate for other defects in the house such as small bedrooms or too few bathrooms.  For many, the granite kitchen has become a symbol of the good life and of good times.  There’s just something about family, friends, home, and kitchen that is inextricably tied together – despite our love of take-out.

Check out some of these Montclair homes for sale, and see if these kitchens match your ideals.

Do all of us have a strong interest or skill in cooking? No.  But even those among us who have never flambéed or sautéed love a great kitchen. Friend and fellow Montclair resident, Alma Schneider has even built a business around the incongruity between having a fab kitchen but not knowing how to use it.  “Overcoming Obstacles to Cooking” is the theme of her blog “Take Back The Kitchen.” Here she offers tips, coaching packages, and classes.

Me, I’m still living with butcher block counters in my circa 1925 kitchen, albeit with new appliances, hoping that my friends and family will forgive my sin of missing granite.  What does your kitchen look like?

Many real estate agents hate Zillow.   But not for the reason you think.  When Zillow was launched a couple of years ago the word on the street was that agents would lose their usefulness in helping sellers determine their home’s value.  That turns out to be far from the truth—which is that agents have to spend an awful lot of time explaining Zillow’s  inaccuracies.

Here’s the beef.  Zillow is a huge aggregator of data.  They use info uploaded by real estate agents (not always accurate), tax assessment data and comparable sales.  Then use a proprietary formula to calculate a “Zestimate.”  But they have no way of accounting for hyper local conditions, for example, a house that has not been updated for 50 years. Or a house that backs up to a gas station.  Or a house with a fabulous view (that the house next door may not have because it’s blocked by trees).  These are factors that only a human being with local expertise can work in to the house value equation. In fact Zillow’s self-reported level of accuracy in the Northern New Jersey Market is a median error of about 12 %.

In other words, half the houses sell for within 12% of its Zestimate.  And the other half do not.

Only 25% of homes sold for within 5% of the Zillow estimate.  That means you can count on Zillow to be really accurate only about a quarter of the time!

When Zillow is wrong, it can be really wrong. Take this house in Glen Ridge which recently sold for 380,000.  Zillow’s estimate was 573,000.  Can you imagine the agent trying to convince the seller that despite what Zillow says the house is actually worth almost 200,000 less?  Here’s what Zillow didn’t know about this house.  It needed extensive repair and was owned by a bank that wanted to get rid of it as fast as possible.

The take away is that no computer can substitute for a careful assessment by a qualified human.  While Zillow may work well for communities that have a very homogeneous stock of houses (think Levittown), it does not work as well for towns like Montclair and Glen Ridge where a two million dollar home is often a block or two away from a four hundred thousand dollar home.

On the bright side—isn’t it good to know that human experience and judgment still beat out the computer?