Katy Cardinale

Yesterday's blog spoke about the true value of home ownership and how we are getting back to those values. Middle age parents who have owned a home understand its true value. A home has always been a good long term financial investment. However, homeownership also has many other benefits.

I was speaking to an experienced broker yesterday who is looking to help her college student daughter buy a home this year. Other agents I have spoken to are experiencing the same thing. They are meeting parents of young adult children who are strongly suggesting that their children take advantage of the low cost of homeownership available today. Some parents are helping financially and are even co-signing for the mortgage.

At first, I was a little surprised. Many news headlines cry that the real estate market is horrible. However, after thinking about it, it made complete sense. Here's why:

Financially Sound

Let's look at the financial aspects of renting vs. buying. With house prices falling and interest rates still historically low, throwing money away on rent may not make sense anymore.

In an article from CNN Money earlier this week, they looked at this issue:

Perhaps not surprisingly, it makes more financial sense to rent than buy today in many U.S. cities...

But that may finally be about to change. Moody's chief economist Mark Zandi expects the trend to reverse this year in many major cities.

"By mid 2011 and certainly by end of 2011, buying will be superior to renting in most parts of the country," Zandi says.

As one person said to us recently: "Rents are like adjustable rate mortgages. They adjust often and most times they adjust upward!"

As a matter of fact, Fannie Mae just came out with their National Housing Survey which asked the question directly: Is this a major reason to buy a home?

The study broke up the answers into financial and non-financial reasons. The top four reasons and six of the top ten reasons were NON-FINANCIAL. The top four are below:

1. It means having a good place to raise children and provide a good education.
2. You have a physical structure where you and your family feel safe.
3. It allows you to have more space for your family.
4. It gives you control over what you do with your living space (renovations & updates).

You should not be surprised. Aren't these the same reasons our parents bought their home? Aren't these the same reasons we purchased our home?

These are the same reasons parents have suggested their children buy a home. They want the same things for their grandchildren that they believed to be important for their children.

Bottom Line

Now that the craziness of this housing market is beginning to show signs of settling, people are getting back to the core values that families have always embraced. Homeownership is definitely high on the list. When real estate billionare John Paulson was asked about the market on Sept. 27, 2010, he said, "If you don't own a home, buy one. If you own one home, buy another one. If you own two homes, buy a thrid. And, lend your relatives the money to buy a home." I agree!

Statistic information used with permission from Keeping Current Matters.

For the last ten years, every time we talked about real estate we immediately discussed money. We didn't talk about the value of a home but instead about the price of the house. We didn't worry about a roof over our heads but instead the ceiling on our interest rate. We didn't care as much about where we raised our family as we cared about increasing our family's net worth. Many of us considered flipping a house or buying a rental property.

That will change in 2011. I believe very strongly that real estate will return to what it has been for the 200+ year history of this country: a place for us and our families to live comfortably. It will also prove to be a great long term investment as it always has been. Forbes.com said, "With all the teeth-gnashing over the real estate bubble, the bust and the mortgage mess, you can be forgiven for failing to notice this little tidbit: Housing had a superb decade." (Forbes.com 12/06/2010) In fact, if you purchased a house in the year 2000, you had an average value gain of 58% per square foot in 2010.

Our parents and our grandparents didn't buy their homes as a short term financial investment. They bought it so they had a place of their own to come home to at the end of the day; a place to raise their family; a place they could feel safe. A survey by Fannie Mae (Nov. 2010) found that 96% of people see homeownership as a positive experience.

Sure they dreamed of the day they paid off their mortgage. They realized it was a form of forced savings. They were taught that, if they paid their mortgage every month, they would wind up with a little retirement account decades later.

And, they realized that wouldn't happen if they rented.

However, in the last decade, we somehow forgot that the financial aspect was the icing on the cake not the major reason to buy. I believe that 2011 will be the year that people return to the historic reasons families purchased a home. This is the year when we again remember that homeownership is a major part of the American Dream.

What about the challenges to a housing recovery? Let's look at them.

The Economy

Some reports are showing that the economy is doing better. This shopping season provided additional proof of this point. As the economy recovers, so will consumer confidence. This will be great news for housing.

Unemployment

There is much talk about a ‘jobless recovery'. I agree that unemployment will continue to be a challenge. However, when you talk about housing, it is not the unemployment rate that is all telling. Instead, it is the change in the rate. As unemployment skyrocketed, people started to worry about their own job. Any change creates concern. Unchecked concern turns to fear. Fear causes paralysis. The spike in unemployment has plateaued. People no longer have the feeling that ‘they are next'. The fear will diminish and hopefully, people will start moving on with their lives. This too will be great news for housing.

Locally, in Suffolk County, the unemployment rate was lower than the national average at 7.4% in the December 2010 report and even lower in Kings Park at 6.3%.* As the economy recovers, more and more people will feel secure in their jobs and willing to commit to buying a home.

Interest Rates

It seems the bottomless pit in which rates have been falling does have a floor after all. And it seems we have found it. Those purchasers who had been waiting for the best interest rate may have already missed it. I personally completed a refinance loan application in early December when the rates were 3.5%. By the time I was approved, the rates had increased to 4.5%. Buy a home NOW, before the rates rise even higher.

Prices

Economists are projecting that prices will not see any appreciation in 2011. Sellers who had been waiting for 2006 to return will come to the realization that waiting any longer makes little sense. They will instead decide to get on with their lives and sell this year. When you figure in the amount of money spent on mortgage interest, property taxes and home maintenance, you may not sell at a high enough price to make up for the money you spent waiting.

Prices probably will soften further. However, the possible savings to potential buyers will be minimized by a rise in interest rates.

Bottom Line

This is the year that the real estate market returns to normal. People will buy and sell based on the desire for a better life for themselves and their families. They will realize the true value of homeownership and they will be willing to pay for that value. With prices and interest rates low, it is the perfect time to buy that first home or move up to a larger home.

*Suffolk County Department of Labor, www.suffolkcountyny.gov/labor

Some information used with permission from Keeping Current Matters

Imagine... you list a house for sale and start marketing it. While talking to your seller you learn that they purchased the home is 2003, have very little equity and will just break even on the sale. You also learn that since purchasing the home, they have taken out loans on two cars, accumulated quite a bit of credit card debt and had a baby so the wife is now working part-time, off the books. In addition, their credit took a big hit when the husband was out of work for nine months in 2007.

Since they are expecting baby number two, they would like to move to a less expensive neighborhood and get a larger home for around the same price. They have even budgeted for the same monthly mortgage payment. Sounds like a good plan right? Wrong.

You have done a great job pricing and marketing their home and they are in full contract in less than a month. They find a house they love and feel they can afford. Except, based on their new debt to income ratio and lower credit score, they cannot get approved for the new mortgage they want. They end up buying a smaller, less expensive home in their second choice neighborhood. And of course, they blame you. If they had gotten pre-qualified for a mortgage before listing their home for sale, they may have waited until their credit had improved or the wife went back to work full-time. They may have even decided to not sell their home at all.

Yes, you earned a commission on the sale. However, will these clients refer you or will they bad-mouth you to everyone they know? By getting pre-qualified for a mortgage before selling, they know exactly what they will be able to afford and exactly how much they need to walk away with after selling their home. Suggest that your sellers consult a mortgage broker before selling and it could save them from a rude awakening later or solidify their decision to sell. It also shows that you care about their end result and not just your paycheck.

Homeowners often fret over having photos taken of their home. An experienced photographer should be able to offer advice on which rooms and photos will look best. Don't expect your photographer to clean the home, but they can advise you on simple solutions to make photos look better.

Here is a fairly comprehensive list to help you prepare for a virtual tour:

• Move cars out of the driveway and away from the front of the home.
• Put interior and exterior garbage cans in the garage or out of sight.
• Remove all clutter.
• Temporarily remove any "obstacle" furniture. This is furniture that blocks a line of sight or often feels in the way.
• If the home is vacant, bring in some furniture or hire a home stager. Professionally staged homes sell faster and for 6-10% more money!
• Hire landscape maintenance professionals to clean the exterior and plant colorful flowers in the front of the house.
• Don't worry about dark rooms. The camera and editing can correct this.
• Clean off kitchen counters; store small appliances in the cabinets.
• Turn off ceiling fans. Moving objects can blur a photo.
• Observe neighboring properties before doing a 360 degree virtual tour outside. Your neighbors' properties will show.
• Light dust does NOT show up in photos.
• Consider setting the formal dining room table with a nice centerpiece.
• Fresh flowers or a nice bowl of fruit can add color and interest to a room.
• Add green plants to a plain room. Green looks great in photos.
• Don't shy away from taking photos on an overcast day. This can minimize the glare coming in windows and washing out the photos.
• Night is usually not the best time to take photos of the home.
• You do not have to photograph every room. Highlight the best features of the home to peak buyers' interests.
• Consider doing a virtual tour of a nice bathroom. Virtual tours can make small spaces look larger. If the bathroom is outdated, consider skipping this room.
• Keep pets out of the photos.
• Trust your photographer. From their experience, they will know what will look best in a photo.
• Remember that rooms with many mirrors may show the camera equipment. Good photographers will use a remote so that the photographer is not in the photo.
• Prepare the home and be ready before your photographer arrives. They have scheduled a set amount of time for your photo session.

These are just a few of the ways you can showcase your home in the best way through professional photos and virtual tours. Good luck with your next photo shoot!