Who’s Buying Maine?

 Posted by at 8:28 am
Feb 132011
 

The answer might surprise you!

For several years now, MREIS (Maine Real Estate Information System) has tracked where buyers of Maine property live(d) when they purchased the property. The 2010 data has just been summarized and I’ve tabulated some of the results–specifically single family homes.

The data shows that three out of four (76.5%) of the single family homes sold in Maine last year were sold to people already living in Maine.

When we add the New England States we learn that just over 90% of the homes sold in Maine last year were sold to people already living in the Northeast.  (Massachusetts accounts for 7.17%, New Hampshire 3.7%, New York 1.45%, Connecticut 1.3% and Vermont .43%.)

One item that I confess surprised me a little was that 1.3% of the sales were to buyers from Florida. I suppose these might be “seasonal” homes, but we could wonder if perhaps a few people are trading some sun for some snow.

While the numbers aren’t statistically significant it is interesting to note that the states of Pennsylvania, Virginia, California, Texas and Maryland have provided Maine with a number of buyers and 43 (.36%) of the homes sold were purchased by “International” buyers. And would the one person from Mississippi who bought a home in Maine last year please raise his or her hand?

“What about land?” you say. The numbers are not signficantly different. Just under 76% of land sales in 2010 were made to buyers already living in Maine.

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Should I buy now?

 Posted by at 6:21 am
Nov 062010
 

According to a recent article in Real Estate Economy Watch, “Despite 19.1 percent fewer home sales in September than a year ago, private mortgage insurance applications received by leading mortgage insurers are up 32 percent in the past 12 months.”

For those who might not know, private mortgage insurance (PMI) protects the lender in the event the borrower defaults and it comes into play when the borrower is unable to make a conventional (20% of purchase price) down payment. Using PMI the borrower can borrow with as little as 5 % down. The smaller down payment makes the loan higher risk.

So a somewhat simplified analysis suggests that while the number of home sales is down 19%, more and more of those purchasers need private mortgage insurance (32% more) because they simply do not have the traditional down payment. The good news is PMI makes home purchasing possible for buyers who’ve been unable to accumulate the sizeable amounts of cash typically necessary to purchase a home. The bad news is PMI significantly increases the monthly cost of the home. (A homeowner with a $100,000 mortgage could see an additional $40 tacked on to his or her mortgage payment.)

So what makes sense? Does a buyer who does not have an abundance of cash buy now and pay the PMI? Or does it make sense to wait? The only correct answer is, “It depends.”

Now more than ever we all need to manage our money wisely. You don’t have to see too many real estate ads to hear “it’s a good time to buy.” I’d suggest inserting some disclaimers. It might be a good time to buy. Prices are down and interest rates are at historic lows.

But if it’s a great time to buy, why isn’t everyone buying? Why were sales down 19% in September? Here’s one correct answer that’s certain: Now more than ever it makes sense to sit down and look hard at your personal situation before making a major financial decision. It might also make sense to do that with someone who has a long term outlook and no immediate self-interest in your decision. I have several clients who’ve told me that I’m not allowed to retire for at least three years.

That’s called “taking a long term outlook.”

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I Saw It On TV!

 Posted by at 10:37 am
May 172010
 

I’ve been reading a book based on a TV series about real estate. It’s actually fairly well written and in many cases downright funny.  But there are also a number of places where it is just plain wrong. That’s one of the joys of receiving advice (whether it’s from a book, TV show, or the agent you are working with). Sometimes it’s just plain wrong.

I chuckled a bit when a potential buyer called me recently to announce that she was ready to buy a house because she’d been watching all the real estate programs on TV and knew “how it worked.” I envied her because I’ve been at this for a while and I still don’t know how it works. Not every time anyway.

Students in my real estate classes learn to remember that we have two hands and that should remind us to consider both sides of a question when giving clients advice. When a buyer asks, “Should I make a really low offer?” we do well when we consider both possible answers. “Yes, because the seller might accept it. But on the other hand… there are some risks associated with really low offers…”

In other words, you should be getting all the information necessary to make a decision that is ultimately yours. If I could give a buyer only one “tip” it would be just that. Get all the information—the pros and cons—before making an informed decision. In simplest form the tip is “be a smart buyer” and that includes surrounding yourself with professionals willing to educate you.

In addition to being a smart buyer, here are some other recommendations—many of which will apply to sellers as well.

  • Read every piece of paper and take everything seriously. This is especially important regarding the offer you sign. Don’t be intimidated into just signing and don’t be too proud to ask questions about any points you don’t understand.
  • Keep legible copies of all paperwork in an organized file. Remember that a real estate transaction is complex. Be prepared to consult professionals: lenders, home inspectors, attorneys, accountants.
  • Don’t just look for a house; look for a community or neighborhood. Unless you are a hermit, what’s around you will have importance. You can add a family room. Changing a community isn’t quite so easy.
  • Be prepared to act quickly and be available to do what needs to be done. Taking a few days off to go to the islands might sound good, but remember your priorities. It’s actually a good idea to set a timetable. I once worked with a buyer who had been looking for seven years. (Not with me!)
  • It will sound self-serving, but have some loyalty to the agent you choose.
  • In Maine, you should be given a one page “Real Estate Relationships Form” that describes various types of relationships the law permits and requirements for them. Selecting the agent and type of relationship is an important decision that should be made early in the process.
  • Understand that there is an emotional and financial component to selecting a home to purchase. In the ideal world, these will be in balance. In the real world they’ll require some juggling. The home you fall in love with may not make the best economic sense. That doesn’t mean you should reject it. (Think, “On the one hand—on the other hand.”)

Ultimately this really is about making an informed decision—your informed decision. Don’t let somebody else tell you the right answer. Oh… and don’t believe everything you see on TV!

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Make Your Own “Stimulus” Package?

 Posted by at 5:46 am
May 082010
 

The opportunity may be gone to collect a tax credit for buying a home, but that doesn’t mean there aren’t other opportunities for buyers. Just consider this: there were some reports of sellers “hardballing” buyers in the last few weeks of tax credit eligibility. Sellers knew that buyers were working against a deadline and they took advantage of it. They knew getting under contract meant up to $8,000 in tax credit for the buyer and they decided to “force” the seller to share the wealth by increasing the offered price. “If I accept your offer you stand to receive an $8,000 benefit. My counter offer involves you sharing that… I want $4,000 more than you offered.” We might say that a buyer’s opportunity became a seller’s opportunity as the deadline approached.

This reminds me of the oft-stated truth, “There’s nothing like a fast approaching deadline to keep you focused.” In a perhaps not intended way, the tax credit deadline created some “undue influence” on buyers who waited until the last minute to find their home and get the deal done. We can argue whether or not the sellers in these instances were being fair, but the buyers ultimately put themselves in this position.

A lot of buyers are repeating the mistake and again putting themselves in a less than ideal position. Without getting all “economic” we can say with some confidence that interest rates are already off their lows. I’m not confident about how quickly they will climb, but I’m sure they will. The only question that’s worth talking about is how long it takes for sellers to realize climbing interest rates are creating another deadline for buyers.

It’s basic math. As interest rates climb, payments and costs go up. Each “click” up potentially reduces the amount of house a buyer can afford. (The money that would have gone into purchasing the house goes into paying to borrow the money.) So, let’s say for example, as a buyer you postpone your buying decision hoping prices will come down. If you’re looking at homes requiring a $100,000 mortgage and interest rates climb just one half percent that delay cost you $5500 in increased interest cost over the life of the mortgage. Your monthly payment will also increase 3%.

If interest rates begin to climb quickly, sellers may gain the edge in negotiating. The house the buyer could afford today will become unaffordable at some point in the near future.

So, while I don’t subscribe to the “it’s a great time to buy!” theory as a general guideline, I do think it’s a great time to sit down and do some thinking and analysis and make some decisions. If you are in the market to buy, how long are you going to wait before you “get serious” and make a decision? Does waiting cost you money or make you money?

Let’s not forget the principle of “target fixation.” The term stems from a phenomena discovered in World War II where pilots became so fixated on targets they would tend to collide with them during strafing runs. The brain gets so focused on the target that awareness of obstacles and hazards decreases. (If I represent you in a transaction, one of my tasks is to help keep you focused without allowing you to become fixated.)

Your stimulus package is no longer about a tax credit. In reality, that was only one piece of the buying decision. I’ve used interest rates as an example, but that’s just another component. Yes, prices of homes (in general) are down. That’s just another component. Your personal stimulus package needs to include all the positives and negatives at your disposal–you might be surprised at how many there are!

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Loan me…?

 Posted by at 5:28 am
Apr 192010
 

One of the calls I seem to be getting more of involves the buyer or the buyer’s agent asking, “Will the owner provide financing?” Since these calls are typically regarding property I have listed, I usually try to do a little research regarding the need for owner financing. Fortunately, most of the answers are honest.

Not too long ago, a statistic was released suggesting that over 20% of the people asked thought it was “okay” to walk away from a mortgage in which the holder was in over his or her head. In layman’s terms, I think that means one in five people find it acceptable not to pay back the money they’ve borrowed.

That must have included one call I had requesting owner financing. In reply to my question regarding why owner financing was being sought I got the explanation that the potential buyer for my client’s property was “walking away” from the house and mortgage he currently owned. He is desparate for a place to live and has a “small” downpayment.

And I’m supposed to suggest my seller client offer financing to this person?

I am not unsympathetic to those who have fallen on hard times, but I also do not think sellers should make bad decisions. It’s also no secret that lenders have “tightened up” lending standards–there are very few circumstances that suggest a seller should become a lender with low standards. For that matter, it’s not a particularly good time for a seller to become a lender with high standards.

Currently one of out ten mortgages is delinquent according to Real Estate Economy Watch. This is over 20% higher than a year ago. Foreclosure rates are over 50% higher than a year ago and there doesn’t seem to be any indication things are going to improve much in the immediate future.

If you are selling remember that “owner financing” in almost any form means you are loaning money to the buyer. Typically, owner financing is being requested because the buyer can’t get financing through a bank. There’s historically been a false sense of security with owner financing because the seller can always “take the property back.” Before you owner finance you might want to explore how difficult and expensive that is… and be sure you are making an informed decision.

 Buying Real Estate, Financing, Home, Home, Selling Real Estate  1 Response »

Smaller Homes Are Better?

 Posted by at 3:23 pm
Mar 022010
 

Some data released by the National Association of Home Builders will be of interest to home buyers and sellers. New-homes are, of course, new homes and as such it’s tempting to think “different” than the market for an existing home. Can we say “Maybe, maybe not?” Are new home buyers really THAT different than folks buying existing homes?

Perhaps the most interesting bit of data is that the average size of a house built is down for the first time in twenty-seven years! Maine readers may be particularly surprised to learn that the average home built in 2009 was 2,480 square feet—significantly larger than what we are used to in Maine. That’s down from the 2008 average of 2,520 square feet by about 1.6%. The pundits are saying things like “small is the new big.” (How much sense does that make really?) Of course the fact that we’re talking about something less than 2% makes me wonder about the margin for error… but there is also logic at work here.  One commentator suggests that “cents and sensibility” are coming into play.

Cents and sensibility may mean talking about the cost per square foot. But we also need to remember we pay for our homes more than once. There’s the cost to build or buy it, the cost to heat, maintain, insure and clean it. Certainly as times get harder (a.k.a. the recession) the need to think about size and objective needs becomes important. 

Let’s not be too quick to attribute the smaller home trend solely to the economy. Remember that the number of households with members 55 and older is increasing. Typically this is a “smaller home” market. This also tends to be a single story market. Does that suggest our general housing market is a bit more focused on single story homes? But wait! There’s also a focus on energy efficiency these days and two story homes are definitely more cost efficient to build…

Personally, I wouldn’t suggest one consider these market trends in planning purchases—they are too spongy and general. But the “cents and sensibility” factor is important. How much home you should buy is really a factor of your needs and your needs should include a reasonable determination of what you can afford—not only to buy but to heat, maintain, insure and clean. One thing we ought to have learned from the foreclosure crisis is that it’s not just about how much of a mortgage a buyer can get. The critical question is “how much house can a buyer afford?”

 Buying Real Estate, Financing, Home  No Responses »

FAQ on Tax Credit

 Posted by at 5:59 am
Feb 102010
 

For complete information visit http://mainelistings.com/taxcredit. The IRS provides these answers to questions on the homebuyer tax credit.

Q. Is a taxpayer who purchases a mobile home and places the home on leased land eligible for the first-time homebuyer credit?

A. Yes. A mobile home may qualify as a principal residence and it is not necessary that the taxpayer own the land to qualify for the first-time homebuyer credit. 

Q. I purchased a duplex home with two separate dwelling units. I will live in one dwelling and will rent out the other dwelling unit and report the rental income on Schedule E. May I qualify for the first-time homebuyer credit, and what amount do I use for the purchase price to determine the amount of the credit?

A. Yes, you may qualify for the credit for the dwelling unit that you use as your principal residence. To determine the amount of your credit, you must allocate the purchase price of the duplex between the two separate dwelling units. You may not use the entire purchase price of the duplex to determine the amount of your credit.

The credit is available for eligible home purchases after April 8, 2008. You must enter into a binding contract to buy the home before May 1, 2010 and close before July 1, 2010, in order to obtain the credit. For a home you construct, the purchase date is considered to be the date you first occupy the home.

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Why Wait To Buy A Home?

 Posted by at 4:13 pm
Feb 052010
 

There are, of course some very legitimate reasons. But one big reason that would be hard to argue with is that you want your home to cost you more than it could if you buy now. There are at least three factors that nearly guarantee waiting will be expensive and you’ll get to pay more.

  1. Mortgage Rates are very likely going to increase soon. There’s a consensus among the experts supporting this because rates have been artificially low for the past fourteen months. This is due in part to assistance from the Federal Reserve though the mortgage-backed securities purchase program. The feds have consistently maintained the program will end March 31st. While predictions of the result are vague, most concur that a rise of .50 to 1.00% soon after April t wouldn’t be unreasonable.
  2. First time home buyers have been receiving tax credits of up to $8,000 and repeat buyers up to $6,500. The “catch” is buyers will need to have a home under-contract by April 3oth (that’s only two and a half months away as of this writing) and close by June 30th. Lenders are now suggesting it takes 45 days to close on all but strictly conventional mortgages. If you haven’t started looking, you might want to lay this out on a calendar. Unless you are counting on another extension of the program “times awastin’.”
  3. FHA is also promising an increase in upfront costs effective April 5th. The cost of the mortgage insurance premium (payable at closing) will increase from 1.75% of the loan amount to 2.25%. Yes, this can be financed. But remember you’ll be paying more to pay more since interest rates will likely have risen.

Without getting too complicated, let’s use a property requiring a $100,000 mortgage purchased after these programs run out. A 1% increase in mortgage rates will create a $62 increase in the monthly payment and will cost nearly $6,000 more during the first seven years. If the mortgage is an FHA loan, the .5% increase in the mortgage insurance premium adds $500 (we’ll assume it’s not financed—that would add more cost). A first time homebuyer has missed the $8,000 and proved the value of “waiting” a few months was worth nearly $15,000 in total.

Smart move?

The only financial argument would be that it’s a good bet home prices are going to drop further and offset the additional costs. In this example, you’d be betting the home price will drop at least 15% in the next few months.

Smart bet?

Obviously your numbers may be different, but one thing that would be smart is to sit down and figure them out—or get some help from a real estate or banking professional to see what makes sense for your situation.

The sooner, the better!

 Buying Real Estate, Financing, Home, Market Information  No Responses »

I Saw It on TV!

 Posted by at 12:51 pm
Feb 032010
 

I’ve been reading a book based on a TV series about real estate. It’s actually fairly well written and in many cases downright funny.  But there are also a number of places where it is just plain wrong. That’s one of the joys of receiving advice (whether it’s from a book, TV show, or the agent you are working with). Sometimes it’s just plain wrong. (I chuckled a bit when a potential buyer called me recently to announce that she was ready to buy a house because she’d been watching all the real estate programs on TV and knew “how it worked.”

I envied her because I’ve been at this for a while and I still don’t know how it works. Not every time anyway.

Students in my real estate classes learn to remember that we have two hands and that should remind us to consider both sides of a question when giving clients advice. When a buyer asks, “Should I make a really low offer?” we do well when we consider both possible answers.

“Yes, because the seller might accept it. But on the other hand… there are some risks associated with really low offers…” In other words, you should be getting all the information necessary to make a decision that is ultimately yours.

If I could give a buyer only one “tip” it would be just that. Get all the information—the pros and cons—before making an informed decision. In simplest form the tip is “be a smart buyer” and that includes surrounding yourself with professionals willing to educate you.

In addition to being a smart buyer, here are some other recommendations—many of which will apply to sellers as well.

  • Read every piece of paper and take everything seriously. This is especially important regarding the offer you sign. Don’t be intimidated into just signing and don’t be too proud to ask questions about any points you don’t understand. Keep legible copies of all paperwork in an organized file.
  • Remember that a real estate transaction is complex. Be prepared to consult professionals: lenders, home inspectors, attorneys, accountants.
  • Don’t just look for a house; look for a community or neighborhood. Unless you are a hermit, what’s around you will have importance. You can add a family room. Changing a community isn’t quite so easy.
  • Be prepared to act quickly and be available to do what needs to be done. Taking a few days off to go to the islands might sound good, but remember your priorities. It’s actually a good idea to set a timetable. I once worked with a buyer who had been looking for seven years.
  • It will sound self-serving, but have some loyalty to the agent you choose. In Maine, you should be given a one page “Real Estate Relationships Form” that describes various types of relationships the law permits and requirements for them. Selecting the agent and type of relationship is an important decision that should be made early in the process.
  • Understand that there is an emotional and financial component to selecting a home to purchase. In the ideal world, these will be in balance. In the real world they’ll require some juggling. The home you fall in love with may not make the best economic sense. That doesn’t mean you should reject it. (Think, “On the one hand—on the other hand.”)

A study of economics usually reveals that the best time to buy anything is last year.
Marty Allen

 Buying Real Estate, Home  No Responses »

Should I be a little nervous?

 Posted by at 10:03 am
Jan 062010
 

This article was originally written as a “Buyer’s Tip” for TheDailyME — an excellent source of local news and information in the “greater Dexter” area.

—————————-

If you are considering buying a home, it makes sense to be a little nervous. You’ve probably seen the ads or heard people say “it’s a great time to buy!” Like all generalities that’s true, but there are also some reasons to be cautious. Unless you’ve been out of the country of living under a rock, you know the economy and housing markets are uncertain. Just how much this uncertainty affects your decision making will depend on a number of factors all relative to your personal situation. If we change “nervous” to “cautious” we begin to see the need to make decisions deliberately. For some people in some circumstances it actually may not be a good time to buy.

One important consideration is how long you will own the home. Putting down roots with a long term commitment does suggest this is a good time to buy. If you expect to own the home for a relatively short period of time caution is in order. The reasons for that are beyond the scope of a short article like this largely because we’re again dealing in generalities.

One reason it’s an excellent time to buy is that prices are down to historic lows. As a buyer you might be attracted to the lowest priced listings. It’s important to understand the total cost of purchasing and owning a home as that should be your primary consideration.

Another reason it’s an excellent time to buy is mortgage rates are at historic lows. It is true that lending standards have increased, but most lenders have money to lend. The caution here is that it’s also a good time to “shop around” both lenders and loan types to be certain you are borrowing in a way that is most beneficial to your circumstance.

The theme here is “Knowledge is power.” The more you know and understand about your personal situation, loan programs, the market, etc. the more power you will feel. And that feeling won’t be an illusion; you’ll have power. The right agent will help you explore your situation, build a team that makes your purchase decision truly in your best interest, and find that power. One generality that can’t be argued with: this is not a “one size fits all” market. You want to work with people who are more interested in you than they are in selling a house.

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