“Change your thoughts and you change your world.” — Norman Vincent Peale: Was a minister and author of inspirational books
YOUR RETIREMENT HOME: IS NOW THE TIME TO BUY?
The last several years have wreaked havoc on many people’s plans for retirement. They have seen their nest egg dwindle and in some cases disappear. Many have pushed back the date they will stop working and some have stopped even thinking about what part of the country to which they plan to relocate. For some however, this may be the time to again begin putting their retirement plan together.
There is a tremendous opportunity right now to buy a home at a sensational price in certain traditional retirement destinations. Couple that with the fact that in other parts of the country the housing market is still experiencing falling prices and we may be looking at a perfect window of opportunity to buy your retirement home.
Example: If you currently live in New Jersey, you are probably well aware of two things:
there was a lot of snow there this past winter and
the local housing market is struggling
Point number one might have you dreaming of spending your retirement years in a place like Las Vegas or Tucson or San Diego. However, point number two might have you believing this is not the time to even consider the move: If I can’t get top value for my house, why sell now? Actually, this may be a very opportune time.
What caused prices to tumble throughout the country was the emergence of distressed properties (foreclosures and short sales). These discounted properties put tremendous downward pressure on the values of the other homes in the region. The states that are clearing this inventory rapidly are the states where prices will recover more quickly. The states that were first hit with the housing crisis (Arizona, Nevada, California and Florida) are now the first to show signs of a recovery because they are selling off their distressed properties at a faster pace than many other parts of the country. New Jersey, on the other hand (along with much of the Northeast), is seeing their inventory of distressed properties growing. That is why prices are continuing to soften.
What does this have to do with my retirement plans?
If you own a home where prices are falling and plan to buy a retirement home in one of the areas that are beginning to recover, you are sitting on an asset that is losing value and waiting to purchase an asset that is about to increase in value. That doesnâ€™t make sense financially. Even if you are not 100% ready to move right now, it might make sense to sell the 4 bedroom colonial you currently own in New Jersey (or in NY, MA or WA) and buy a smaller home or condo in town. With the additional money from the sale, you could probably buy a beautiful retirement home in the area you always dreamed about relocating to. Even if you needed some extra financing to buy the perfect home, you are borrowing while mortgage money is very inexpensive.
How do I know if this applies to me?
As mentioned above, the primary factor determining where prices are headed is the number of distressed properties in the area. Look at the map below from NAR. It shows the amount of distressed properties about to come to market in each state in the country. If the state you currently live in is red, yellow or orange and the state to which you plan to retire is a shade of green, you should at least consider the move.
There are definitely challenges for many in the current housing market. At the same time, opportunities exist for others. Sit with a real estate professional who can give you the right data to help determine whether such an opportunity currently exists for you.
IS IT TIME TO DIVERSIFY YOUR INVESTMENT PORTFOLIO?
Studies now show that over 20% of the houses with mortgages in the country are underwater (where the loan amount exceeds the value of the property). Some bought their house at the top of the market and saw prices come tumbling down over the last few years. Losing this value has caused challenges for many in this category.
Other homeowners are underwater because they refinanced their homes at the height of the market and cashed out some of their equity. Some did this several times as values continued to rise and interest rates continued to fall. When prices dropped, they too found themselves in a negative equity situation. But not everyone in this category is in a worse position financially. Let’s break down this category.
Some Used Their House as an ATM
Some homeowners took cash out of their home to finance a lifestyle they desired. They bought a new car or a new boat. Some used the cash for fabulous vacations to locations they had always dreamed about. This group didn’t lose their equity. They spent it. Maybe these purchases were worth the price that these homeowners are now paying. Only the individual person can answer that question.
Some Used Their House to Finance an Education or Start a Business
It has long been a tradition in this country that people tap the equity in their home to finance their children’s college education or to gather together the start-up capital necessary to open their own business. These people didn’t lose their equity. They invested it in their children or their business. Was it worth it? For the couple who refinanced their home for their son or daughter’s education in 2007, a good time to ask may be next month as they are attending their children’s college graduation. For those who started a business with the money, whether it was a good idea was determined by their business plan not the housing market.
Some Used Their Home to Diversify Their Investment Portfolio
Some savvy homeowners, upon seeing their home values skyrocketing, decided to pull cash out and invest in other asset classes. At the height of the market (2006), some took $100,000 out of their home and invested in the stock market or in precious metals. Instead of sitting on their equity, they decided to put it to work for them. How did this group do? If they invested in the Dow, that $100,000 is now worth approximately $115,000. If they invested in gold, that $100,000 is now worth $290,000. (We never read about these people in the thousands of stories on the housing bubble. Good news just doesn’t seem to sell papers.)
In every challenge there is an opportunity. Perhaps the opportunity in housing today is to use some of the equity in other assets we currently own to purchase real estate while it is low and mortgage money remains cheap. The Wall Street Journal and Forbes Magazine both suggested this exact strategy to their readers in the last three months.
GOP/FANNIE MAE & FREDDIE MAC
Shutting down Fannie Mae and Freddie Mac should fit seamlessly into the Republican drive to shrink government. After all, keeping the ailing mortgage giants afloat has cost taxpayers $150 billion and many in both parties want private lenders to finance a bigger share of the nation’s $11.3 trillion residential mortgage market.
But House and Senate Republicans pushing bills to phase out both federally run companies are learning how fear, politics, and old-fashioned lobbying can trump ideology.
Even in the GOP-run House, leading proponents of doing away with Fannie and Freddie are not predicting victory. As a precaution, they are advancing eight bills taking bite-sized swipes at the issue. In the Democrat-led Senate, a sister measure by 2008 presidential candidate Senator John McCain, Republican of Arizona, faces long odds, and the Banking Committee’s top Democrat and Republican are wary of quickly reshaping the market for financing home purchases.
Fannie and Freddie do not issue mortgages but buy them from the original lenders, thus providing cash for more loans. They then package many mortgages into securities that they resell to investors, using a government guarantee that lets them pay a lower yield than their few competitors.
With housing still staggering from foreclosures and low prices, some Republicans worry that erasing the federal role in the mortgage market could rattle the housing industry and perhaps the entire economy. Without the government guarantee of mortgage products that Fannie and Freddie enjoy, the cost of mortgages would likely rise, making homes less affordable.
Though Democrats, including President Obama, agree that Fannie and Freddie should be eased aside to get private lenders back in the market, Republicans generally want to move faster and further.
For many in the GOP, Fannie and Freddie epitomize government waste run amok. Under President George W. Bush, the government took them over in September 2008 as they teetered near collapse as the housing market crumbled. Taxpayers have since shoveled $154 billion at the two companies to keep them alive – which resonates at a time when efforts to trim record budget deficits are a premier national issue.
Working against the changes are the National Association of Realtors, the National Association of Home Builders, and the Mortgage Bankers Association. While all are major Washington players, the realtors are especially potent: The $3.8 million they donated to more than 500 congressional candidates in the 2010 election was tops among all political action committees, according to the nonpartisan Center for Responsive Politics.
The Obama administration has offered three options for phasing out Fannie and Freddie, with varying degrees of continued federal involvement, but left subsequent decisions to Congress.
3 RED FLAGS FOR BUYER CONTRACTS
Writing a home purchase contract is crucial. Otherwise, it can easily derail a deal.
Here are some common contract mistakes:
1. Buyers don’t secure financing by deadline.
Many contracts are contingent upon the buyer securing financing by a particular date. However, in today’s tight lending environment, you’ll want to ensure you allow extra time for buyers to get mortgage approval. Otherwise, sellers may terminate the contract altogether and even keep the earnest money deposit if a buyer doesn’t meet the deadline in getting financing.
Be realistic about your closing date and don’t try to close too quickly, Patti Lawton, a broker with Welcome Home Realty in Brunswick, Maine, told Bankrate.com. “There are a lot of things that need to be done properly, and you must give lenders, title companies, and others time,” Lawton says.
2. Not being clear on what stays with the house.
Clearly state in the contract what stays with the home. You don’t want buyers to walk into their new home after closing to unexpectedly find the chandeliers missing.
3. Missing signatures.
“Sometimes the home is owned by both spouses, other owners or an entity such as corporation,” says lawyer Jeff Marks, a partner with Ryan and Marks Attorneys LLP in Jacksonville, Fla. “Make sure all of the parties sign the contract. If a party to the transaction fails to sign, they’re not bound to perform the contract.”
IS IT REALLY A BUYER’S MARKET
With falling home prices and higher inventories, most of the public views real estate as a “buyer’s market,” in which buyers hold more of the control and sellers will more eagerly accept lower offers just to sell.
Not so fast, say buyers and sellers. More buyers are finding the sellers in the driver’s seat.
Buyer Young Hammack gave up looking for homes for a while after being outbid on three properties in California. “It’s a false buyer’s market,” Hammack says. “If you think prices are cheap, wait until you start putting offers in.”
Many sellers may be unable or unwilling to lower their home prices – mostly because they may be underwater on their mortgage – so buyers are increasingly finding lower offers than list price denied. Buyers, on the other hand, may be reluctant to agree to a deal if they don’t feel like they are getting it at a deep discount, industry insiders say.
Traditional buyers also are finding even buying a foreclosure can be difficult as they’re increasingly outbid by investors who are willing to pay cash.
“There’s a shortage of attractive inventory,” says Glenn Kelman, chief executive of Redfin Corp. “Customers just keep getting outbid on the houses that they want.”
Real estate professional Steve Capen with Keller Williams Realty in St. Petersburg, Fla., says that the homes most in demand among buyers often don’t require much repair work and are located in good school districts and choice neighborhoods near transit hubs.
“What’s selling is the cream of the crop, and they sell fast,” Capen says. “If it’s not cream of the crop, it’s getting hammered.”