Millennials: What They Might Mean to Real Estate This Year and Beyond

Millennials are the biggest demographic group in the country. But, of course they’re not the only one. There are many more and each one plays a unique role in the real estate you plan to do. Let’s take a look at all the generations in America and what they might mean to your real estate plans.  

Now of course the millennials became the largest demographic group in America last year. The millennials were born between 1981 and 1997. According to the US Census Bureau, there are now slightly more than 75 million members in the millennial generation. So with those numbers could they really change the face of real estate in America? Create a buying surge like never before? Well, yes. We’re starting to see signs that the millennial buying surge might be getting under way. Last year, the National Association of REALTORS said first time buyers made up 32% of the market. And now, 35%. The first time buyers are coming back to closing tables all over America. They want to buy homes! And if they can, they do. So if you watch real estate, the millennials are a generation to watch closely.  
The next biggest group of Americans is the baby boomer generation. The people born after World War Two between 1946 and 1964. There are slightly fewer than 75 million baby boomers. It’s close but not quite as big as the millennial generation. The baby boomers for the most part already own homes. Freddie Mac reports that the baby boomer generation holds close to eight trillion dollars worth of equity in real estate. That’s nearly two thirds of all real estate wealth in America. NAR reports about forty percent of them plan to buy again. So they’re a huge force in American real estate. They’re also more wealthy than younger generations.

Now in between the boomers and the millennials is the group of Americans born from 1965 to 1980. They’re called generation X or gen x’ers. They’re commonly referred to as the middle child of American generations. Gen X is also smaller than the boomers for a couple of reasons. One, they were born at a time Americans were having fewer children. Also, they’re generational span is one year shorter than millennials. Now the real estate implications of the gen X’ers however, is huge. As NAR reports, they’re in their peak earning years. They’re the most likely to be married and most likely to have kids in the house. They also buy the most expensive homes and the biggest homes of all the generations.

Now it’s just about millennials, gen X’ers, and baby boomers. There are older and younger generations too. But the vast majority of real estate transactions happen among one of those three generations. The millennials, the gen X’ers, and the baby boomers. Each with a different real estate dream. Each with different amounts of income, savings, and equity to make that dream come true. Together they are real estate in America. A fascinating patchwork quilt of you and me, our neighbors, our friends, and our homes.

One of the trends we’re seeing just makes me smile. The Gen Y generation, which is younger than the millennials. They do things differently. Different social media, different websites, different apps, and different view points. Why? Well they wouldn’t want to imitate the millennials because for the Gen Y’s, the millennials are just so….old.

Show Me the Money

How much cash will you need to bring to the closing table?

Let’s start low and then build up. First of all, if you qualify for a VA loan, they allow a zero down payment. If you’re a veteran or an active duty service member, you need to know that. Also, if you’re buying a home in a rural area, ask your REALTOR about the Department of Agriculture program. Yep, the USDA has a zero down home loan program for people buying out in the country.

Now if neither of those programs work for you then you’ll have to come up with some cash when you buy a house. But, you do not need a 20% down payment. If you’re a qualified buyer you can find a good safe mortgage which requires as little as 3% down. And again, this is not some sub-prime back alley mortgage, this is a high quality home loan. So that’s a good starting point.

Now, how do you get the money? Well course people who sell one house and buy another, they just take the profit from the first place and buy the second one. But if you’re a first time home buyer you don’t have that ability. So for you there are basically four ways to get your down payment ready to go.

First, save it. Just sock away all the money you can and try to temporarily stop spending on things you don’t really need. Plenty of people have given up vacations or expensive dinners in order to conserve their down payment money. You can too. It helps by the way to have your money put in your savings account automatically – direct deposit. You never see it so you won’t be apt to dip into it.

Second, plenty of first time home buyers get the down payment from their parents. But it has to be a gift, not a loan. Lenders won’t allow you to barrow the down payment. Your parents will have to give you the money. It happens all the time all across America.

Third, if you have an IRA or a 401K you might be able to withdraw money for a down payment. Talk to your accountant about this one. You need to try at least to avoid penalties for early withdraw. So talk to a financial pro about whether that’s a smart move for you or not.

The forth way to come up with a down payment, your city or state might have a program that provides down payment assistance. Again, talk to your REALTOR about what programs are in your area. You might qualify, you might not. Many people are surprised that they can be making a pretty good amount of money and still get down payment assistance.

On last thought. I talked a lot about how to get into a house with a low down payment. But if you can, you should know, it’s almost always better to put down more. Put down as much as you can. Your monthly payments will be less, you’ll walk into the place with more equity. And if prices were to drop, you’ll have more protection against going under water. So more is better. And if you just don’t have more, that’s okay. Remember, you do not need 20%. If all you have is 3%, 3.5%, or 5%, don’t give up. Because the home you want could be within your reach.

Sell That House: Seller Strategies That Might Help You

If you’ve decided to sell this spring, congratulations!  Good move. More homes sell between the months of April through June than any other part of the year. It’s prime time. When sellers have the best possible chance of selling for the maximum profit in the minimum time.

Realtor.com released a report about selling this spring and they agree it’s the peak selling season. Think about it. Prices are still rising, that’s good for sellers. Plus there are more home buyers than there are homes for sale. That’s good for sellers too. Because you might find that so many buyers want your place that they start a bidding war. The price could go way over list. But, talk that through with your REALTOR. Because if those bidding buyers are getting mortgages, there will be an appraisal. And that could be a problem.

The most important thing a seller can do is price the property correctly. No guess work, no pulling a price out of thin air. No thinking, “Hey, it’s a seller’s market, I can ask anything.” Because entering the market at a price that’s much higher than it should be, that’s not good news. Because the property might just sit there while you reduce the price again and again. That’s what some agents call the “death spiral”. Because buyers see the price dropping and they figure the sellers are desperate.  And then they’ll hit you with a low ball offer. Instead, use real market data that your REALTOR provides. They’ll go through all the recent sales and give you hard numbers about the best possible selling price for your home.

Next up, make that house shine. Make it look so good you might change your mind about selling it. So good the buyers will want to write an offer the first time they see it. To hit that goal your house needs to be squeaky clean with all the repairs done. Touch up paint, done. Lawn and garden clean ups, done. Here’s a great tip, set the dinning room table just like Thanksgiving. Use the good china, the good glasses, the good silverware, candles, and a center piece. Buyers will love that.

Finally, one of the best seller strategies out there – try saying yes more than no. If a potential buyer makes a request about the closing date or the curtains in the living room or even the gas grill they’d like you to leave behind, just try saying yes. If they’re offering really good money for the house, don’t let the little stuff get in the way. Stay on track towards a successful sale and it might the best spring of your life.

Connected After the Closing

The closing – in which the seller sells, the buyer buys, everybody shakes hands and the real estate transaction is a success. However, even after its done there’s one last thing that connects the buyer to the seller. It’s something that’s not always pleasant. The mail! Say that you just bought a house but the former owner still gets tons of mail every single day. Or if you sell a house but you never get any of the mail addressed to your old place forwarded to you, nothing.  

Ok, I know, in today’s digital world some people never get any mail but most of us do. Whether it’s a bank statement, or a refund check, or a magazine subscription. So when the house changes hands, what happens? Well, for starters as the seller you should go to your local post office or go online and fill out a change of address form. That’s the best way to make you won’t miss any mail. It’s quick, it’s easy, and it works perfectly.
Now, what if you don’t do that, do the people who bought your house have a legal responsibility to forward each and every piece of mail that arrives? Or if the new owner never forwards any mail at all and just throws it out, are they breaking the law? It’s a great question, because the fact is it happens a lot. People just forget to do that change of address form and there you are in the new house when you realize you’re not receiving anything from your old address. No letters, no magazines, no flyers, nothing. So who’s fault is it? According to the postal service, it’s your mail, and your new address, so it’s your responsibility to make sure it gets to you.

So really, you should fill out that change of address form. But if you don’t, when it comes to the new owners of your old place, they have options. Assuming that they know your new address, they could write it on every piece of mail and put it back in the box and it would eventually get to you at your new address. But again, that’s asking them to do all the readdressing. And if you get a lot of mail that’s a lot of work. Other options, they could write NSP on it. That means no such person. Or RTS, return to sender, and they can put it back in the mail box. But of course, if they do that you’ll never get it. It would either go to the dead letter bin or back to the original sender.

But what if they do just throw it all away? If it’s bulk mail, that’s probably okay. According to the postal service, catalogues, restaurant menus, that sort of thing is okay to throw away. But if it’s first class mail, that my friend is a crime. You cannot destroy first class mail. But here’s the problem, how to you prove the new owners are really throwing out your mail?

So let’s get back to the real solution here. Change your address yourself. Do in person at the post office or do it online. Don’t rely on the people who just bought your house. Again, the postal service says it your job to make sure your mail gets to you at your new house. Because if you do it the right way, just think, the next time somebody says “The check is in the mail”, you’ll actually get it.

The Offer: Walking You Through Every Step

I want to talk to all you folks who will be selling your house this Spring. It’s exciting isn’t it? Buying a house is great, but when you do that you’re paying money. When you sell, you’re making money. And maybe a lot of money. At least that’s the plan.

So let’s talk about what to do when you get one or maybe ten offers on your house.

It’s such a great moment, when your REALTOR calls and says “We have an offer”! Now, your first question will be “How much”? What price did the buyer come up with? And yes, that’s huge. It’s human nature to react that way. But, price isn’t everything. So you’re gonna want to sit down with your REALTOR and walk through the offer page-by-page. And if there are multiple offers on your house – well, first of all, well done. But in that case you might need a second pot of coffee. There will be a lot to talk about.

Now sure, even though price isn’t the only thing, it’s huge. So let’s start with price. Now if the price offered by one or more potential buyers is just sky high, more than you ever thought you would get. That’s pretty exciting but you might want to come down to earth. Because if those buyers are getting a mortgage, the house will still have to pass an appraisal. And if it appraises lower than that sky high offer, you’ll either have to reduce the price at that point or the buyer will have to come up with more cash or the whole deal just might end right there. So a nice, fat, realistic price is much better than one way up in the stratosphere. Now if it’s all cash, that’s completely different. If they offer an all cash deal at a widely high price, that’s awesome and good for you.

Next, you and your REALTOR will look at the terms. When does the buyer want to take possession? Does that work for you? How much earnest money is the buyer putting down? How many contingencies do they have? In other words, walk aways. Does the buyer seem committed or do they have a long list of things that might make them leave the deal all together. That’s why price is somewhat relative. You see, if one offer is really high but contains a half dozen ways the buyer can get out of the deal – that might not be as good as a slightly lower priced offer in which the buyer has fewer walk aways. You’re looking for the buyer that will go the distance all the way to closing.

And that brings us to one more really important issue. Can the buyer really afford to do the deal? Your REALTOR will help you there. A pre-approval letter should give you a pretty good idea of whether they have the horsepower to buy the house and make it to the closing table.

And finally, after you pick the best offer, you may need to make a counter offer. In fact, that happens most of the time. Very few offers are accepted as is or rejected as is. Most of them involve counter offers. And there might be several rounds. Just think of it this way, every time you do another round, you’re getting closing to a meeting of the minds. A ratified contract which will go all the way to the closing table.

Yep, getting an offer is a great moment. You feel like you did it. All the work you put into the house, all the showings, and all the open houses, all of that paid off because a buyer does want your house. But when you and your REALTOR go through every page of that offer and then make a counter offer that the buyer agrees to, well, that’s an even greater moment. Because the biggest transaction of your life is now in the final lap headed to the closing table. And that is awesome.

A Regrettable Emerging Trend in Real Estate

Bad guys. Guys that want to hack your smart home. Guys that want to cheat the closing company. Guys that want to steal your down payment. Guys that try to do all of that online.  You see, these days the bad guys never show their faces. They’re just at a computer somewhere trying to hack, cheat, and steal.

Now of course, online bad guys are nothing new. They’ve been around ever since the Internet was invented, but the unfortunate trend we’re seeing these days is that more and more of their online crime is being directed toward real estate. That’s why we are talking about it, because the more aware you are about what the bad guys are trying to do, the better protected you are against their criminal behavior.

So let’s talk about the bad guys, what they’re doing and how you can stop it before you’re affected. Let’s begin with hacking your smart home. Many of the really cool and really fun devices for our smart homes are apparently easy to hack. Hackers are targeting smart home devices to try and get into your network, and into your personal and financial data also. Two possible defenses here – use a special email address just for your smart home devices. So if they’re hacked the bad guys won’t have your primary email address. Also, you may want to have a separate network for your smart home devices. So if a criminal hacks into it they will not be in your main home network. They’ll be on a secondary network and they won’t be anywhere near your personal data.

Now the next thing the bad guys are doing is targeting the closing. We’ve heard that some title companies no longer accept certified checks, that’s right, certified checks. Because some people reportedly were photographing certified checks depositing them electronically into their bank account and then handing over that same check at closing. The solution, you wire the funds to the closing company. But that one requires a very careful approach. Because another bad guy real estate trend is that criminals are faking emails from your real estate agent, from the title company, or your lender. They’re telling buyers to wire their down payment to an account which turns out to be phony. They’ve stolen entire down payments. That money, it’s gone. This is grand theft real estate. Both the Department of Justice and the National Association of REALTORS have been getting the word out to make sure consumers know about it and to help them avoid being harmed by this cyber crime.

So here’s the best defense. Never rely on any email instructions to wire money. Never. If your agent or title company, or lender or anyone emails you with instructions on how to wire your down payment for the home you’re about to buy – delete it. Then call on the phone instead. Talk to your agent person to person. Talk to the title company person to person, or go to their office and meet with them face-to-face. Get the information on wiring your money directly from them. That way you can make the wire transfer with confidence.  But again, any instructions that come in an email, just delete it.

It’s unfortunate that we even have to mention fraud like this. But, fact is, it’s a trend in real estate. But, if enough people are aware of it and if enough people know how to stop it, then maybe stopping the bad guys before they do any harm will be the real trend of 2017.

 

What is Home Equity?

Home equity seems to be a very simple calculation—the total amount of mortgages owed subtracted from the current market value of a home. One side of the equation is well defined and it is found on the monthly mortgage statement, the loan balance, the other side is less obvious—the current market value of the property.

As a homeowner, your down payment purchases your initial equity and your monthly (or additional) principal payments increase your equity. In strong real estate markets and in-demand locations, equity can increase quite rapidly as the property value increases, but the inverse can also happen—too much available inventory and market down-cycles can lead to falling home values and a reduction in homeowner equity.

Creating Value is in Your Hands Maintaining the condition of a home is vitally important to retaining and increasing value. Homes are judged against their peers—how do they compare to similar homes in the neighborhood. Another way to retain value is to not over upgrade, since it is rare to ever recoup the money spent if you exceed neighborhood value. Keep up the landscaping and do the little things to add curb appeal.

Putting Home Equity to Work Home equity represents the largest single asset of millions of Americans, and because it represents so much of an individual’s net worth, it must be treated with respect. Home equity is not a liquid asset until a property is sold, or it is borrowed against.

How Much Equity can be accessed?

Since the financial institution is lending money and using a home as collateral, they will not lend 100% of equity. Most banks will allow a qualified homeowner to borrow approximately 80% of their equity.

 It’s Important to use Your Home Equity Wisely.

Because it is likely the biggest asset most people have, losing your home equity is hard to overcome. It must be used in prudent ways and the payments against the loan must be the loan payment is only acceptable for a short-term solution.

There are number of good reasons to use money from a home equity loan and some really bad ones.

    1. Invest in Your Home.

The best way to use the money is create more equity in the home. Among the very best returns on your investment (ROI) include kitchen and bathroom remodels, adding square footage or an extra bath, enhancing curb appeal and repairing/keeping the existing structure sound. Making prudent investments in your home is a wonderful win-win, you enjoy the upgrades and they can add value to the home.

  1. Invest in your Children’s Education.

Using your home equity to finance a child’s higher education may be the greatest pay off of all. Not only is the rate much lower than a student loan, it is an investment in the child’s future.

  1. Supplement Retirement Needs.

Older homeowners spent their working lives paying down their mortgage. At retirement, when monthly income is reduced, a home equity loan could pay for a dream vacation or an unexpected major expense.

  1. Augment the Impending Sale of a Home.

If you’re planning to sell soon, a home equity line of credit may be the best way to finance improvements, and you can pay it off entirely when you sell. Investing wisely on upgrades and repairs may even reap a profit on your investment.

 Some Not Very Wise Choices

On the flip side, adding luxury amenities like a swimming pool, hot spa, lavish landscaping, expensive appliances and exotic countertops and flooring rarely pay off.

Purchasing a car or boat or most any personal luxury items is a poor use of the funds, since these quickly depreciate in value.

Also stay away from using money on risk-heavy investments. Financing stock purchases, start-up businesses and paying routine bills is not smart. If one cannot afford to purchase those items with available funds, using equity from your home means they should not be in your budget.

Treat a home equity loan as an investment and not as extra cash when making financial decisions.

If your intended use of the money doesn’t pay you back in some way, it’s not the best use of your valuable equity.

 

We are Happy to Assist You if you would like an assessment of the market value of your home and the current equity you can access, give us a call for a comparative market analysis.