History shows it doesn’t take very long for market corrections (declines of greater than 10% but less than 20%) to reverse and return to prior peaks. The mean time to market recovery has only been 107 days. Source: SeekingAlpha.com
The total value of all developed real estate on the planet reached a whopping $217 trillion in 2015, according to a new report released by U.K.-based real estate adviser Savills. Source: MarketWatch
According to investment firm Deutsche Bank, on average, the stock market has a correction, defined as a drop of at least 10% or more from its recent high, every 357 days—or about once a year. Source: USA Today
To pay off or not to pay off your mortgage when you’re on the verge of retirement can be a mystifying dilemma.
Making end-of-career decisions is challenging, but adding a mortgage ready to expire can generate a significant dose of confusion for even the most financially adept consumer.
On the one hand, you want the piece of mind brought by reducing your financial liabilities as you move to a period of reduced income. On the other, you don’t want to blow a chunk of money on paying off your mortgage and leave yourself in a precarious position during a period of reduced income.
All things considered, it’s generally best to go ahead and pay off the mortgage, says Tim Moran, a financial planner and managing partner of Moran and Company in Rochester, Mich.
“That being said, we won’t instruct them to pay it off if they don’t have liquidity or emergency money,” he said.
Though whether or not you have that financial cushion can make or break the decision for you, there are a few more elements to wrap into your consideration.
What To Consider If You Pay off the Mortgage
Not carrying a mortgage sounds like a dream come true to many borrowers, but just because you aren’t writing a check to your lender each month doesn’t mean all financial property obligations end.
Kevin Driscoll, vice president of advisory services at Vienna, Va.-based Navy Federal Financial Group (NFFG) says although your mortgage payment may fade away, your tax and insurance bill isn’t going anywhere.
“Some homeowners forget that no mortgage doesn’t mean no payments,” Driscoll says. “Unfortunately, you are still going to get a tax bill for that property and maintaining sufficient funds is something every homeowner should consider long before that mortgage is paid off.”
He says the same efforts will need to be made for insurance and homeowner association fees. “Although you are free of two-thirds of that monthly payment, you will still need that remaining third,” Driscoll says. “Establishing a safe and stable account to maintain the funds that will be paid to a municipality, insurance and taxes is vital to maintaining stability.”
Driscoll suggests homeowners investigate safe savings options before the last mortgage payment is made. “Consider an NCUA protected savings or money market account for the funds you plan to set aside for tax, homeowner association and insurance payments,” he says. “Never park your funds in anything risky, because you don’t want to be surprised if the money you invested is no longer sufficient or available when it comes time to pay the bill.”
Beyond squirreling cash to pay insurance and taxes, Moran says mortgage-free homeowners should consider using the cash that went to pay off the mortgage to pay down other debts. “Often, people will pay off the house and then increase their spending and not save money,” Driscoll says. “They may be carrying high interest rate credit cards or other high interest debt that should be paid off first.”
Make Contact with Tax and Insurance Companies
Once you know how you will maintain savings, make a point to contact each payee with regard to how the money will be delivered on an annual or monthly basis. “Your mortgage company is no longer going to escrow the funds so you will need to handle each company on an individual basis,” Driscoll says. “For instance, let your insurance company know you are paying off your mortgage and will be handling payments.”
One reason reaching out to the tax appraiser and insurance company is vital is because if your mortgage company is managing your tax or insurance invoice, you don’t want future communications to end up on the mortgage broker’s desk with the possibility that invoice or important letter could fall through the cracks.
“Not only could you miss important communication, missing an invoice could result in late fees if you are missing payments–you don’t want this to occur due to a computer glitch,” Driscoll says.
Another reason homeowners should make an individualized effort to reach out, especially to the insurance agent, is to maintain proper coverage in case of a catastrophic event.
“Make sure your insurance company knows you are no longer carrying a mortgage and that your mortgage company be removed from your policy as a payee,” Driscoll says. “In case something catastrophic happens to your property, your payment will go to you and not get hung up with your previous mortgage company.”
Ultimately, homeowners should obtain a document that states the borrower is relieved of all mortgage obligations. “It puts the period at the end of the sentence,” Driscoll says.
If You Aren’t Close to Retirement, Should You Still Pay Off Your Mortgage
Moran says the same mortgage pay off rule for retirees doesn’t apply to clients who plan to stay on the job.
“Clients who are far away from retirement and are younger, in most cases, we advise them not to pay off mortgages because interest rates are really low,” he says. “Plus they are still building a retirement fund, so we would rather see them build that fund, rather than paying off a low rate mortgage loan.”
Financial goals should always be on the borrower’s forefront, Driscoll adds. “Every single situation is broadly different,” he says. “Advice will differ as you could be working with someone who has refinanced their home several times and is paying a mortgage rate of 4.5% versus someone who may still be paying a rate of 8%; so our advice extends to the borrower’s current financial situation, his or her mortgage rate and future goals.”
Ultimately it all boils down to identifying the goal you’d like to achieve with new money and then targeting your strategy toward that goal.
“If my goal is to put kids through college in two and a half or three years or leave a few dollars for the grandchildren in 15 years, your plan of attack will be different,” Driscoll says. “Everything is goal-based, because your money is so important to you.” That means there’s no one-size-fits-all solution; whether or not to pay off your mortgage needs to be strained through your particular lens and stage of life.
In a recent blog post, Rande Spiegelman, vice president of financial planning at Schwab Center for Financial Research offered a smart strategy for mortgage management. “If your mortgage has no prepayment penalty, an alternative to paying it off entirely before you retire is paying down the principal,” Spiegelman said. “You can do this by making an extra principal payment each month or by sending in a partial lump sum.”
The borrower saves in the interest and the loan payoff goes faster while still maintaining liquidity and diversification.
Erica MacKinnon and Bill Sneed have lived all over the world and spent a couple of years in a rented Los Angeles duplex considering whether to move to Miami or Seattle, Oakland or Portland, Maine.
Instead, nearly a year ago, the business and life partners packed up and headed to Detroit, which they had visited months earlier in search of computer coders for their small commercial digital-animation company.
“We spent three days in Detroit, and we just fell in love with the city,” said MacKinnon, 38. “We couldn’t believe the mix of the location and the water and the people.” They also appreciated the expansive 90-year-old brick homes priced below most nondescript L.A. bungalows.
Those homes, in Detroit neighborhoods filled with 4,000- to 7,000-square-foot beauties, are in hot demand, both by newcomers to Michigan and Detroit suburbanites.
New residents have come to Detroit from Paris, Panama, New York, Washington and San Francisco, lured to the city by its creative vibe, sense of urban adventure and affordable homes — even when they buy abodes with a butler’s pantry and third-floor servants’ quarters.
Buyers think: “Why not trade a two-bedroom apartment in Manhattan and have an 8,800-square-foot mansion in Detroit for half of that?” said Kenan Bakirci, an agent for Max Broock who for almost 20 years has focused on Palmer Woods and Sherwood Forest, two historic neighborhoods in north-central Detroit.
In a city where homes still can cost less than a beat-up Chevrolet, demand has revved up for luxury residences that look as if a Bentley or vintage Cadillac belongs in their garages. These high-end homes in the city’s historic neighborhoods frequently attract multiple offers and often sell above the listing price, real estate agents say.
Detroit is a city of empty lots and faded or abandoned homes, and the poverty rate is more than twice the national average. Many blue-collar workers live in suburban bungalows, and executives own sprawling homes in the suburban cities of Grosse Pointe or Bloomfield Hills.
Many people are not aware of Detroit’s mansion districts, where auto barons and wealthy business owners spared no expense to build homes from 1900 to 1929. Homes in Detroit’s Palmer Woods neighborhood have living rooms large enough to seat 110 at a jazz concert. Some come with carriage houses and basement bars big enough for 50 guests.
“Homes that are move-in ready get heated action — multiple offers within the first week,” said Ryan Cooley, who leads O’Connor Realty and landed Sneed and MacKinnon their home. Some receive eight or more offers, he said.
In September, MacKinnon and Sneed moved into a stately 1923 brick home with room for an art studio for Sneed, guest rooms for visits by nieces and nephews, and a home office for their Yankee Peddler animation and design company. They beat out several other offers for the home in Indian Village, one of the half-dozen Detroit neighborhoods where mansions and luxury homes or condominiums are found.
Betty J. Warmack has sold homes in Detroit, mainly in Indian Village, for more than 30 years and says she has never seen this much demand and multiple offers. “I sold an attorney from New York a house, a psychiatrist from New York a house and a blogger” from Europe bought in Indian Village, a neighborhood on Detroit’s east side that is on the National Historic Register, she said. “It’s quite a comeback.”
Homes that four years ago rarely sold for more than $200,000 fetch twice that amount if they are ready for their new owners to move in, real estate agents say.
About 15 homes sold for $500,000 or more last year through October, more than double the seven high-end sales for the same period in 2014, according to Realcomp, which runs the city’s multiple-listing service.
A few carry price tags of more than $1 million, a rarefied amount that only one Detroit home has sold for since 2006. That home, the Alfred J. Fisher mansion in Palmer Woods, went for $1.6 million in 2014 — more than homes in the tony suburbs fetched that year, according to Realcomp. It sold again last year, for $1.55 million to General Motors President Daniel Ammann and his wife, Pernilla, a partner in a New York advertising agency. (A high-profile mansiononce owned by Motown Records founder Berry Gordy Jr. in the Boston-Edison neighborhood was taken off the market in July.)
Austin Black II, a broker and owner of City Living Detroit, says he is amazed at how many executives have decided that it’s time to live in the city of Detroit, because for years they would house-hunt only in the nicer suburbs, where there were 217 million-dollar homes that sold in 2014 and 229 through October, Realcomp data shows. Inventory in the city has been low for months, Black said, with only a handful of homes for sale in prime neighborhoods. It’s gotten so tight, he said, that he has gone door to door in a few neighborhoods seeking people who are ready to put their homes up for sale.
“I have 20 or so clients who are ready and able to purchase a home right now. Inventory doesn’t exist,” Black said.
Demand in the mansion districts is so high and inventory so low, Black and others say, that some buyers are opting for adjoining neighborhoods, with stately but less elegant homes.
The rising home prices may begin to persuade current homeowners to cash in their mansions and elegant abodes, some of which could fetch record or near-record prices. But “because the market is doing so well lately, some sellers get aggressive with pricing” and those homes sell much slower, Black said.
To many, the influx of new residents is one of several signs that Detroit may finally be on a roll.
Quicken Loans Chairman Dan Gilbert, a Detroit native, is one of the city’s largest commercial landowners, purchasing more than 60 properties downtown for $1.3 billion. And the Kresge and Skillman foundations, JPMorgan Chase and others have committed millions of dollars to revitalization.
Still, those efforts are not enough to jump-start the real estate market and undo the prolonged structural decline of Detroit’s housing stock. So city officials have introduced efforts to either raze or auction abandoned houses. And a community bank is experimenting with a program to renovate vacant houses and, if necessary, absorb a loss to sell them to buyers who may not qualify for traditional loans.
Detroit has neighborhoods that have been ravaged by years of neglect and middle-class flight. It’s a city where dozens of homes are purchased at auction for as little as $1,000 to $7,000. That helps explain why in Detroit and three adjoining cities, homes sold for a median price of $20,183 last year, which is up from the $15,011 median in 2014 and more than double the median price of 2012, according to Realcomp.
Despite an influx of entrepreneurs, artists and hipsters, Detroit’s population fell from 951,000 in 2000 to about 680,250 in 2014. So new residents are moving into a city full of contrasts: Population and employment bases have declined for decades; crime and insurance for home and auto are high. Yet new restaurants and art galleries are opening, and high-end shops are starting to show up from New York, Germany and elsewhere.
Demand for larger luxurious homes may be an indication of Detroit’s comeback; buying has heated up since the city filed for bankruptcy in July 2013 (it emerged about 17 months later). Tech start-ups and boutiques have opened, and investors from China and Europe started buying commercial properties or blocks of homes, many in marginal neighborhoods.
Sneed and MacKinnon said they knew that the market was competitive and that they wanted a home in Indian Village, citing its architectural beauty and proximity to the Detroit River and Belle Isle, a city park in the middle of the river.
So they moved to Detroit in frigid February and rented a loft near downtown. “I wanted . . . to be ready when spring hit for any houses on the market,” MacKinnon said. “We wanted a beautiful, craftsman, old historic home.”
They looked at eight homes and then saw the one they bought: a 4,878-square-foot property on a double lot filled this past summer with peonies, hostas and wind chimes. The Georgian revival has a big homey kitchen and a beautiful fireplace in the living room, four bedrooms on the second floor, and a third-floor office and fifth bedroom. It was spacious without being grand and just felt right from the moment they walked in, MacKinnon said.
So they were aggressive and offered $430,000 — well above the $395,000 asking price. The owner accepted in two days. They have learned about their home’s history from him: It was built in 1923 at a cost of $12,750 for W.J. Davidson, who worked in General Motors’ executive offices, and was said to be a wedding present.
Despite being self-employed, Sneed and MacKinnon had pre-qualified for a larger loan, so they landed a mortgage quickly using a local lender. Home insurance was a bit trickier, but after shopping around, they are satisfied with the policy’s $2,400 annual premium.
Their new home requires some improvements — paint and hardwood floors, electrical and fire- and security-alarm upgrades — but basically it was ready for them to move in, except for cleaning out items left in the basement and a few small repairs. “We have had personal invites to join Thanksgiving parties and 100-year house parties, which is something that never happened in Los Angeles. Back there we never knew our neighbors,” MacKinnon said.
Family members have come for visits, including MacKinnon’s mother and sister, who have shown up three times, she said. Other guests say they were misinformed about Detroit, from negative headlines, and appreciated the food culture, parks and how easy it is to get downtown.
For some higher-priced deals, buyers need to put down more cash because their homes may not appraise at the prices they are paying, some agents said. Some offer all-cash purchases — an easy choice for New Yorkers who sell their $3 million apartment and buy a $500,000 mansion. About 40 percent of high-end purchases are all-cash sales, Cooley estimates. Nationwide, 27 percent of housing purchases were all cash in November, often by investors, according to the National Association of Realtors.
Valrie Honablue, a psychiatrist who grew up in Panama, paid cash for her first Detroit home in 2010. She was living in Atlanta when she read about Motown’s real estate opportunities. “The prices are so low; something is wrong,” she said. So she drove to the city to see for herself. She bought one in Indian Village. Shortly after moving to Detroit, she left for “the job of a lifetime” but bounced back within two years, drawn by “the people and the possibilities” and the beautiful homes.
Her second Detroit home had been vacant for 17 years when she bought it in June 2014. She got it for a bargain price but expects to spend five or six years renovating it, partly to spread out the improvement costs.
Warmack, her agent, calls her “the pied piper of Detroit.” A dozen people have followed Honablue to the city and bought homes.
Many who move to Detroit bring their jobs or businesses with them. Sneed and MacKinnon are among them.
“We just couldn’t get ahead” in Los Angeles, Sneed said. Now after nearly a year in Detroit, they operate their Yankee Peddler animation company from a loft, own a huge home with oversize gardens, and have made new friends who clue them into culture, festivals, dog parks and more.
“We know we’re taking a gamble. . . . But there’s a passion here,” Sneed said. They have turned into Detroit boosters and are eager to celebrate their home’s 100th birthday in seven years. Said MacKinnon: “I can’t believe I live on this street. It blows me away how beautiful these streets are.”
Ever hear of an eight-minute workout? How about an eight-minute mortgage?
Quicken Loans, the third-largest mortgage lender by marketshare, launched a new website called “Rocket Mortgage” last week that allows users to refinance or purchase a home in as little as eight minutes.
The service cuts out the conversation between loan officer and consumer, as the consumer inputs his or her financial information directly into Quicken’s database. Then, the website crunches the numbers like an underwriter would, and offers customizable, real-time rates to the site’s user.
Traditionally, it would take one week to several months to be approved for a housing loan, all of that, of course, after you’ve spent weeks shopping for that loan in the first place. But with Rocket Mortgage, shopping for a loan and applying for it is a process that requires little in the way of time and effort. (California homebuyers also have a speedy mortgage option via the new service Google Compare: Mortgage.)
Since the 2008 real estate bust, traditional lenders have had to compete with techies in Silicon Valley who wanted in on the housing recovery, as start-ups like Sindeo and Lenda — which claims that its clients save an average $8,000 in closing costs when they refinance with their service — try to streamline the residential mortgage process. Other websites and online tools have popped up to create more transparency for home shoppers and refinancers, and nearly anyone can crunch the numbers on a virtual mortgage rate calculator.
Though it only takes a few keystrokes to search for and use a mortgage calculator online or find a startup that’ll connect you with a lender, Rocket Mortgage Product Lead Regis Hadiaris says that nothing is as comprehensive as Quicken’s new service. Calculators use all kinds of assumptions about a consumer that may not hold true, and startups and other non-bank lending platforms don’t have the kind of reach that Quicken does, according to Hadiaris
“We can customize solutions based on income, assets, property, our products and pricing, interest rates, and underwriting guidelines,” Hadiaris says. “The system figures out the very best option for each client. No more assumptions. It’s true clarity in the process.”
Speed is Rocket Mortgage’s biggest selling point. But that doesn’t mean the eight minute-mortgage approval is the end of the home-buying road for consumers. The loan can close in a week, but is “only as fast as the slowest vendor, such as local municipalities and insurance companies,” TechCrunchreports.
Keith Gumbinger, vice president of mortgage and consumer lending information site HSH.com, isn’t convinced that a service like Rocket Mortgage will speed up the home buying process at all for inexperienced and first-time shoppers who may have questions that slow down the process.
“How much more quickly do you actually need to get a mortgage? In the case of a purchase, few borrowers are ready to go, pack up and move in as little as eight minutes, let alone two hours or two weeks,” Gumbinger says. “Having your financing in place more quickly may be of some benefit but may not change the timeframe.”
Rocket Mortgage’s website says that the platform has bank-level encryption and 24/7 security monitoring, but Gumbinger also worries that volunteering personal financial information to a third party creates new ways for a buyer’s financial and personal data to be compromised.
“To just allow some outside party to go through, traipsing through your personal finances, just to get a rate on a mortgage, there’s that and the concern of not necessarily knowing what you’re getting yourself into,” he says.
Of course, you’re not committing to anything through the service unless you reach the end of the process and choose to lock in your rate (after you’ve been approved). And you can call a Quicken Loans representative to help you through the easy-to-use program if you’re confused about the kind of information that’s required. Of course, a step like this will slow down the process–not that that’s necessarily a bad thing.
American homeowners are finally digging out of the hole created by the housing crisis. But their housing wealth is playing a much smaller role in the overall economy than it did before the downturn.
Home equity has roughly doubled to $12.1 trillion since house prices hit bottom in 2011, according to the Federal Reserve. As a result, a key gauge of housing wealth—homeowners’ equity as a share of real-estate values—is nearing the point seen a decade ago, before the downturn.
Such a levels once would have offered a double-barreled boost to the economy by providing owners with more money to tap and making them feel more flush and likely to spend. But today, that newfound wealth has had little effect on behavior. While the traditional ways Americans tap their home equity—home-equity loans, lines of credit and cash-out refinances—are higher than last year, they are still depressed.
In the first half of the year, owners borrowed $43.5 billion against their homes with home-equity loans and lines of credit, according to trade publication Inside Mortgage Finance. That was 45% higher than in the first half of 2014, but scarcely a quarter of the amount seen when equity was last as high in 2007.
Meanwhile, cash-out refinances, which let homeowners take out a new mortgage and tap some of the home’s value at the same time, were up 48% in the three months ended in August from the year-earlier period, according to Black Knight Financial Services. But they remain below the level of summer 2013. The average cash-out refinance in the three months ended in August left the borrower with mortgage debt of about 68% of the home’s value—not a risky level by any stretch.
Home equity’s effect on consumer spending is at its lowest ebb since the early 1990s, according to the Moody’s Analytics. The research firm estimates every $1 rise in home equity in the fourth quarter of 2014 would translate to about two cents of extra consumer spending over the next 1 to 1½ years. That was a third of the impact home equity had before the bust, Moody’s said.
The impact is more muted now despite the fact that home equity per homeowner has roughly doubled. At the end of the second quarter, the figure was about $156,700, up from $81,100 in the second quarter of 2011, according to Moody’s Analytics chief economist Mark Zandi. Though the homeownership rate has fallen, the total number of households has increased, meaning the number of households that own hasn’t changed much since the housing bubble burst in 2006, Mr. Zandi said.
Why aren’t homeowners feeling flush again? For one, since rising home prices over the past few years largely have made up for ground lost during the recession, many owners might not even realize they have equity to tap.
The percentage of homeowners who were underwater, or owing more on their mortgage than the home’s value, dropped to 8.7% by mid-2015 from 21% at the end of 2011, according to CoreLogic. Yet the percentage of homeowners who thought they were underwater fell by merely one percentage point to 27%, according to housing-finance company Fannie Mae.
The bust looms large and home equity is seen as more fleeting than it used to be, said Fannie Mae chief economist Doug Duncan.
“Consumers are definitely more conservative financially than they were 10 years ago. They’ve seen that house prices can be volatile,” Mr. Duncan said.
Mortgage lenders also aren’t giving owners access to as much equity as they used to. While it was common during the boom to see loans that took out 100% or even more of a home’s value, now few will let an owner take out more than 80%.
Finally, other kinds of loans are cheaper, removing one incentive to tap home equity.
Six years ago, for example, the average five-year new-car loan had an interest rate of 6.83%, versus 5.56% for a $30,000 home-equity credit line. But in the week ended Nov. 11, the average interest rate for a five-year new-car loan was 4.3%, according to Bankrate.com, versus 4.74% for the HELOC.
Home equity as a share of real-estate values at the end of the second quarter was 56%, according to the Federal Reserve, not quite back to the level of 60% seen in the boom. That means Americans’ mortgage debt is still elevated relative to home values, which could be another factor affecting the decision of whether or not to cash out equity.
Could home equity start to flex its muscle sometime soon?
Some economists think it might. One reason: In many metro areas, home prices have overtaken or are about to overtake their boom-era peak.
At the end of the third quarter, about 38% of metro areas had prices above their pre-2009 peak, up from 30% last year, according to Moody’s Analytics and CoreLogic. Another 13% of metros are within 5% of their pre-bust peak.
That’s important, because it means new home equity is being created rather than merely making up for lost ground. It also means fewer homeowners are underwater, freeing them up for a home sale and potential move-up purchase while also making home improvements and renovations seem less like throwing good money after bad.
“We’re at an inflection point,” Mr. Zandi said. “Since the crash, it’s all been about repairing homeowners’ equity but now that house prices are returning to prerecession levels, we will see homeowners’ equity driving consumer spending, home improvements and economic activity.”
SAN FRANCISCO — Travelers worldwide may love using Airbnb to book vacation stays, but the company that revolutionized home-sharing faces a hostile ballot measure in the city where it was founded.
Proposition F on the Nov. 3 San Francisco ballot would limit short-term rentals to 75 days a year and require hosting companies such as Airbnb to yank listings that violate the limit.
The city would be required to notify neighbors when a person registers to host. The measure would enable pricey lawsuit damages against violators, including the hosting platform. Current city law limits un-hosted rentals to 90 days. There are no limits on hosted rentals.
Airbnb, by far the largest home-share platform in the city and in the world, has donated $8 million and counting to defeat the proposed ordinance. It has saturated television with ads, even trying to sway voters last week with a botched billboard campaign reminding people of the hotel taxes its service collects.
Backers of the measure say the demand for vacation stays is sucking up scarce housing, adding to the city’s unaffordability and destroying what makes San Francisco neighborhoods unique.
Landlords, they say, have a financial incentive to rent short-term rather than take on long-term tenants, especially in popular neighborhoods such as the Mission District. Proponents have reported raising $350,000.
Airbnb and other opponents argue the measure will pit neighbor against neighbor and drive out residents who can stay in the city only by sharing their homes short-term. Ads feature warm shots of happy families — supposedly home-sharers — as well as cartoons of an elderly man snooping on his neighbors and calling a “snitch hotline.”
Both sides say they are fighting for the soul of San Francisco, a diverse place that is now a national symbol of income inequality amid sky-high housing costs driven in part by a technology boom.
A one-bedroom without parking rents for over $3,000 a month. In September, a decrepit 1,100-square foot house in which a mummified corpse was found earlier this year sold for more than $1.5 million.
“This is definitely a fight that’s representative of the anxiety that exists here due to an economy that’s been so dynamic,” said Sam Lauter, a San Francisco lobbyist not affiliated with the measure.
The measure has deeply divided the city’s Democratic leadership, with U.S. Sen. Dianne Feinstein in favor and Mayor Ed Lee and California Lt. Gov. Gavin Newsom opposed. Feinstein and Newsom are former mayors.
Cities large and small around the world are trying to balance home-sharing’s popularity with livability for residents.
In New York City, it’s generally unlawful to rent an apartment for less than 30 days unless the apartment’s resident also stays there, but people do anyway. In May, the city council of Santa Monica, California, legalized home sharing — the rental of an extra room or couch — but banned un-hosted rentals for less than 30 days.
San Francisco had prohibited rentals of less than 30 days, but in February approved an ordinance to legalize and regulate the practice. Hosts must register with the city and report how many nights they rent their unit.
The coalition behind the measure, which includes landlord and tenant associations, says the current law is unenforceable. They point to skimpy registration numbers for hosts: About 700 of an estimated 5,500 listings on Airbnb alone.
The ballot measure would require platforms, along with hosts, to file quarterly reports on how many nights a unit is rented. Airbnb and other platforms can be fined up to $1,000 a day if they list illegal units.
Neighbors could sue hosts as well as hosting platforms, collecting up to $1,000 a day in special damages.
Airbnb says the measure would encourage frivolous lawsuits by neighbors motivated by money. Airbnb spokesman Christopher Nulty said the measure itself does nothing to address housing affordability.
On Wednesday, Airbnb rolled out billboard and bus stop ads around San Francisco cheekily suggesting ways the city could use the $12 million it has collected in hotel taxes: “Keep the library open later” and “build more bike lanes.” Annoyed tax-paying citizens took to social media. The backlash was so strong the company was forced to apologize for its “wrong tone.”
Michael Rouppet was evicted from his rent-controlled home in September 2012, after a new owner bought the 1909 building. He learned from former neighbors that his place near the Painted Ladies Victorians had been turned into a short-term rental. In June, he sued the owner, alleging violations of rent laws.
“I would ask how many San Francisco residents have to be evicted to see the wisdom in regulating the industry,” he said. The landlord’s lawyer did not return phone calls and email for comment.
On the flip side is Bruce Bennett, who rents out a room in the 3-bedroom midcentury modern he owns with his husband. The money allows the couple to pay for emergency expenses, and guests are able to enjoy a neighborhood far from tourist centers.
“I, as a homeowner, should absolutely have that right to do with my property as I see fit,” Bennett said.
While some thought the skyrocketing rents of 2014 couldn’t be sustained, they did, and then some. There’s no sign of any easing any time soon.
Annual rent growth in September was 5.2 percent, the highest since 2011 and the eighth-straight month the rate has been 5 percent or higher, according to Axiometrics, an apartment research firm. Annual rent growth was at 4.1 percent a year ago, which was still considered high.
“The eight months the rate has been above 5 percent is the longest sustained period of strength we have seen. The last growth cycle was only four years, and this cycle is already five years long — with no sign of stopping,” said Stephanie McCleskey, vice president of research at Axiometrics.
While apartment construction has been strong, it hasn’t been enough or in the places where it is most needed. Now, there are signs it may be tempering. Permits for multifamily construction dropped nearly 15 percent in September from August and are now 1 percent below September 2014, according to the U.S. Census.
The vast majority of new supply has been in pricier areas, in particular major urban cores, which has not helped renters in the suburbs or in smaller cities who are in dire need of more affordable rental housing.
“New inventory coming to market is weighted to the high end; it’s urban, Class A, with a rich set of amenities, targeting the coveted college-educated millennial,” said Sam Chandan, president of Chandan Economics. “Overall, we still have an affordability crisis in the United States with rents rising faster than incomes for the fourth-consecutive year.”
Apartments were 95.3 percent occupied in September nationally, a slight drop from August, but the third-strongest month this year, according to Axiometrics, which considers anything above 95 percent as a “full” market. Occupancy has been at or above 95 percent for six-straight months and 10 of the past 16.
It is clearly a tale of two apartment markets. The pipeline of new product is rich and full in urban downtowns, which will likely temper the rent gains there over the next few years. When doing the math on suburban or Class B markets, however, developers and investors just don’t see desirable returns. Weak income growth will simply not support rent growth.
“When you’re evaluating that as your target market, there is only so hard you can push on rents,” Chandan said.
While some studies have shown that it is now more affordable to buy a home than to rent, several factors keep rental demand high: a lack of homes for sale, especially on the lower end, a desire by younger Americans to remain mobile, a downsizing baby boom generation that may be owning-averse, and high rents themselves keeping potential buyers from being able to save for a down payment.
Rent gains have been largest in cities with growing technology sectors, like Seattle, Denver and Portland, Oregon, but growth is also above average in Nashville, Charlotte and several cities in Florida. Playing into that demand is simple demographics.
“Younger, newly formed households continue to move out of their parents’ or roommate living arrangements and rent an apartment, driving up the demand for more rental units,” said David Crowe, chief econoealRmist for the National Association of Home Builders. He said the trend is expected to continue into 2016.
As single-family construction gains, perhaps the rent crisis will ease, but homebuilders like Lennar and Toll Brothers are hedging their bets, putting up rental apartments as well. Thirty-five percent of new home starts in 2015 have been multi-unit. That is higher than a year ago and the highest share since 1973. Developers are simply going to where demand is highest and most lucrative.
Buying a home should be getting easier for millennials amid sustained gains in U.S. hiring. Instead, increased demand for a scarce supply of starter homes is pushing prices beyond their grasp.
Prices for the least expensive previously owned homes — properties at 75 percent or less of the median — were up 10.7 percent in August from a year earlier and now represent the only one of four price tiers to surpass the peak reached during the housing bubble, according to a housing index from CoreLogic Inc. The August pace was 5.9 percent above its pre-recession high in October 2006.
The gap in the the growth rate between the most expensive and cheapest homes is now the widest since 1983, with the latter rising at a pace that’s 5.2 percentage points higher than that of the top tier.
“You’ve got the front end of a big wave of first-time homebuyers but the supply of affordable housing is not there to meet that wave,” said Sam Khater, CoreLogic’s deputy chief economist. “What you’re seeing in the housing market is a reflection of the polarization of income. The builders are looking at it from that perspective: ‘If I have a choice of going up- and down-market, I’ve got to go up-market.'”
The starter-home supply crunch is worsening, adding to the pressure on prices. The bottom third of the market accounted for 24.4 percent of listings in August, according to property website Zillow. That’s down from 25.6 percent a year earlier. In Denver, where the shortage is extreme, the lowest tier accounted for just 16 percent of inventory.
Living in your own house is the American dream. At least, that’s what everyone is told – by the government, by Hollywood, by our friends and family. It’s an idea a lot of people buy into, and it’s understandable. You get the wrong landlord and some lousy neighbors in an apartment building, and anyone might quickly want their own house.
But buying a house isn’t for everyone. So if you’re looking for counterarguments, or you simply want to feel better about your current living situation, let’s review some pitfalls of homeownership.
Houses are time-consuming. If you feel time is money, you could wind up utterly broke once you factor in all the time it takes to keep up the maintenance. For instance, Samantha Boles, president of her own security company, Automated Security I.S., in Houston, says, “I hate living in a house.”
She admits that it wasn’t always this way. “I feel like homes are for couples and families with children,” says Boles, who has been divorced for seven years and has three children, one of whom is in college and another, in the Navy.
“Four more years and counting,” Boles says, referring to when she can dump her house, adding that her teen daughter is well aware of Boles’ displeasure with homeownership. “She jokes that I will be in the auditorium at her high school graduation with my bags packed.”
Boles says she isn’t a do-it-yourself type of person. “The sheer upkeep is exhausting and expensive,” she says. “Every time an appliance breaks, I have to call a repairman.”
It gets expensive, especially the $400 a month for a yard service.
“If I lived in an apartment, I would save money and be able to call the maintenance man for free if something broke,” she says.
It’s being able to call maintenance that has kept Esfira Shakhmurova from becoming a homeowner. And she is a real estate agent.
Shakhmurova, who also owns a salon specializing in hair removal and electrolysis, lives in New York City. She has lived in an apartment for over 20 years and says she will never buy a house.
“I’ve seen endless tasks that come with the house,” Shakhmurova says. “From outdoor problems of lawn, patio and structural defects to indoor problems of plumbing, electrical and possible mold and lead issues. Now, I’m not saying that you don’t have these headaches in an apartment,” Shakhmurova adds, “but the price you pay … provides someone to take care of this work for you. If the roof leaks, you don’t worry about it because the superintendent will take care of it.”
Houses are expensive. Even if you don’t feel time is money, or not in this case, and you love being DIYer, maintenance projects are expensive. Shakhmurova mentioned a leak in a roof. At some point, if you’re a homeowner, and you live in your home long enough, your roof is going to wear out, and you’re going to have to buy a new one. According to Angie’s List, professionals charged between $5,000 and $12,000 to replace a standard 2,200- to 2,600-square-foot roof in 2014; and Angie’s List members reported paying an average of $11,905 to remove and replace a roof last year.
Even if you manage to get away with never replacing your roof or siding or your water heater, simply paying money to be handed that front door key is a reach. The national median price for a single-family home in the second quarter of 2015 was $229,400, according to the National Association of Realtors. But again, that’s the median. If you live in the San Jose, California, the most expensive market in the country, the median for a single-family home is $980,000. (On the other side of the spectrum, Cumberland, Maryland, is the cheapest metro area; you can buy a single-family home for $82,400.)
But the costs go far beyond the monthly mortgage payment, says Ron Throupe, associate professor at the Franklin R. Burns School of Real Estate and Construction Management at the University of Denver. “There are many additional fees,” he says, including: “The principal interest, property taxes, property insurance, homeowners association fees and home-maintenance costs.”
He adds that you’ll likely need to buy a lot of things for the house at the beginning of your move, too, from new furniture and appliances to a snow shovel or lawn mower.
There may be too much freedom. One reason apartment dwellers consider moving is that they’re tired of all the rules. They may not be able to have a family member crash on the couch for a month if that family member needs a place to stay. They may want to blast the stereo but know they can’t without being reported. Someone living in an apartment may want to paint his or her walls but can’t.
And wanting freedom from those rules is a perfectly good reason to move out and buy your own place. But you may end up missing those rules, according to Sid Savara, a technical product manager and software engineer in Honolulu.
Savara, who has lived in homes, says that for the past few years he has lived in apartment complexes and may well never go back.
“The biggest benefit to me are the rules,” Savara says. “I like that if someone is making noise at 10 p.m., I don’t need to call the police. I just call our on-site manager and security, and they take care of it.”
Granted, some apartment complexes are small enough that calling a landlord or manager at 2 a.m. to deal with noisy neighbors isn’t exactly easy, and plenty of neighbors have homeowners associations, or you can often report a neighbor to your local government if you don’t like that he or she has a rusting automobile in an overgrown front yard.
But Savara does have a point. An apartment complex generally has a lot of restrictions that you may find you like, and those rules often attract like-minded people.
“I never have to call in to actually have the rules enforced,” Savara says. “Having the rules written down means that folks self-select … They want to have a certain style of living. In this case, peace and quiet.”
And there simply may not be as much freedom as you think in a house. If your neighbors are unpleasant, you can sell your home, but selling a house is far more difficult than switching apartments. You may even find that you can’t really sell your house without losing money if property values plummet and you owe the bank more than the home is worth. Living in a house could even cost you a better job. Two years ago, a study released by the Peterson Institute of International Economics suggested that as a state’s homeownership goes up, its unemployment often does as well. The thinking: If you’re anchored to a house, you can’t as easily uproot and move to an area where there are a lot of jobs.
None of this means you shouldn’t buy a house. If owning a house were all that terrible, nobody would have one. But if your home-owning friends or family members ever look at you in wonder because you’re singing the praises of apartment living, you may want to look back at them with equal curiosity. Do they really think you’re crazy, or are they just jealous?
Copyright 2015 U.S. News & World Report
Written by Geoff Williams of U.S. News & World Report
Buying a house with that front porch and white picket fence is every American’s dream. However, buying your first home is not all what you would expect. Yes, you sign a contract and pay for your deposit. But there is so much more time and effort to the entire home buying process than most would believe!
If you spot any damage to the house that you are about to purchase, be aware that the seller is not at all obligated to fix these issues before you buy the house! It makes sense that the seller should fix their home just so they could sell it at a higher value, but it is not a requirement for them to do so. However, as the buyer, you can rescind your offer if these required repairs are too costly for you. So if you hire a home inspector and are presented with a long list of issues with the house, you may need to reevaluate the worth of your purchase. Since the seller isn’t forced to fix these problems, the money that is needed for these repairs will just be an added cost to your purchase! Therefore, if you are setting a budget for the maximum amount you are willing to pay for a house, you need to factor in the costs for repairs to that total as well!
In addition to that, if you do not fix the crucial parts of the house that is in need of repair, you may even be dropped from your homeowners insurance! This is serious because sometimes they give you a limited timeframe where you need to finish your repairs, and you might not be able to afford the costs of these repairs just yet. So be sure that you read the fine print when you are applying for a homeowner’s insurance and are aware of all of the policy measures. But first, before you even settle on a specific homeowners insurance provider, make sure that they will cover the basic but important things that you will need. These may include, floods, break-ins, earthquakes, etc.
Another thing you might not be expecting is that even if you get an inspector to check for needed repairs in your potential home, which is pretty costly, it won’t even be as thorough as you would prefer. Home inspections are pretty expensive. Usually, most buyers are so eager to speed up their timeline that they fail to do their research and compare the fees between inspectors. So the opt for the first one that they find, which may not be the cheapest. And even if a regular home inspector completes a sweep-through of the house, you might need specialized inspectors to check the more detailed parts of the house. However, just because a home inspector said your house doesn’t have any significant issues, doesn’t mean that you are free from any worries, especially if the house is an older one. These inspectors have a limited scope as to what they can see since they are not allowed to break through the walls to check the internal structure. Therefore, you need to consider the fact that the projected worth and safety of the house is not a guarantee.
When buying a house, there will be many aspects in this process that you will not be expecting. Overall, it will be very time consuming and you will face many obstacles if you are not prepared. So before you decide to accomplish every American’s dream of buying your own house, make sure you do your research and have the proper amount of money that it realistically entails!