The Link Between Population Migration and Home Values

The Link Between Population Migration and Home Values

What makes home prices fluctuate?  There are many underlying reasons why home prices rise and fall but when you get right down to it is is good old supply and demand.  If there are many buyers and few sellers prices will rise because of the scarcity.  The converse is also true, if there are many homes on the market and few people want to buy them prices must come down in order to motivate and attract would-be buyers.  Economics 101, right?

Home prices around the United States have been declining over the past few years.  We haven’t lost population but with the poor economy and tight credit which still prevails there are fewer buyers purchasing homes.

A few days ago a very cool population migration map was brought to my attention.  The interactive population map which is presented on  forbes.com shows, by county net migration and immigration.  The really cool part about this tool is that is shows where the people are going and to what degree.  To play with the map yourself go to here.  I’d recommend it.

I also am a big fan of the Federal Housing Finance Agency’s quarterly housing price index.  The index shows how home values have fared in 300 metropolitan areas throughout the United States on a quarterly, 1 year and 5 year basis.  It then ranks home price appreciation using that data.

I thought I would see if there was a link between home values and the migration patterns.  I hope you find some interest in the following presentation.

After studying it, I am struck by how good our position is here in Boulder County going forward.  All predictions show that we are going to continue to gain population.  We have a stable economic base.  One of the best technology centers around, a vibrant university and a emerging industry to be as ConocoPhillips moves to our area in a few years.

 

 

 

Proposed ‘SmartReg’ Proposal Would Burden Landlords in Boulder

Proposed ‘SmartReg’ Proposal Would Burden Landlords in Boulder

In 2006 Boulder’s City Council adopted the Climate Action Plan (CAP).  The CAP is a set of strategies designed to reduce the overall greenhouse gas emissions within the City of Boulder.  The CAP followed the decision of the council to adopt the principles set forth in the Kyoto Protocol, an agreement not ratified by the United States Federal Government.  Within the City of Boulder taxpayers approved to be taxed for the purpose of funding energy efficiency programs (a first in the U.S.).

“At a Nov. 18, 2008 City Council Study Session on the CAP, council identified strategies needed to reduce greenhouse gas emissions to meet CAP objectives.  One of the primary strategies for reaching this goal is to reduce energy use in buildings.  Since 2007, several energy efficiency measures were implemented for residential and commercial buildings in new construction, remodels and additions that exceeded 2006 International Energy Conservation Code (IECC) minimum standards.

Addressing energy efficiency in existing rental housing and existing commercial buildings has been the focus of the 2009/2010 work plan.  Proposed changes to the Housing Code and Rental License Code, including options for energy efficiency requirements, have been developed as part of the broader effort to improve energy efficiency across all building types in the city. The energy efficiency proposal for existing rental housing has been scheduled for consideration first to coincide with the updates to the Housing Code and Rental License Code.  These proposed changes directly address the issues of long-term public health and safety, consistent with the stated purpose of the housing code.” (source bouldercolorado.gov )

On the table right now is a provision which would force energy effiency upgrades to roughly half the housing units in Boulder.  47% of the housing stock within the city limits is rental property.  The City currently has a rental licensing program which up until now has been concerned with the habitibility and safety of the rental units and welfare of the tenants.  The City has proposed an expansion of the rental licensing program which would force owners of rental units to do upgrades that would make their properties more energy efficient.  The expected burden for each unit in order to make various upgrades is estimated to be up to $2,000.

If passed there would be two ways to comply.  The first is to demonstrate that the property is already energy efficient.  The second is to make a series of upgrades to the property to satisfy a set requirement.  The SmarReg proposal is not yet approved but if you would like to have a voice in the wording or implementation of the rule, now is the time.

This will definitely burden landlords with an increased bureaucratic process with increased fees and a large up front costs.  It will benefit renters in the short term who will pay lower utilities but they end up paying higher rent in the long run.  The landlords and tenants are secondary in the minds of the City Council.  The environment is number one.

 

30 year Fixed Mortgage Interest Rates – Historical Graph

30 year Fixed Mortgage Interest Rates – Historical Graph

From time to time it is good to gain some perspective on the environment around you. The real estate market is dependent upon many factors, one of the most important being interest rates.  The affordability of a home depends upon two variables: price and interest rates.  A 1% hike in rates can mean a big difference in what type of house you can afford.  For example, a buyer borrowing $400,000 at 5% would make roughly the same payment as a buyer borrowing $357,000 at 6%.

While the market hasn’t been great over the past two years, imagine if the rates were not within a whisker of the all-time record lows.  These rates will not last forever.  Now is the time to take advantage.

The chart below shows monthly 30 year fixed interest rates since January of 1972.  Source of the raw data was Freddie Mac.

Real Estate Negotiation Tips

A good negotiator is someone who always gets what they want. Right? I say, not always. Being a good negotiator to me is someone who can give themselves or their clients the best chance to achieve their goals. Giving you the best chance does not always mean you will get exactly what you want. In order to achieve sustained success, a negotiator must go for Win-Win, not Win-Lose. A successful negotiation substantially meets the goals of all parties involved.

 

Right now in the Boulder area real estate market buyers have the perception that they may be able to get a great deal on a home. It is true that there is more inventory out there and a portion of those sellers are quite anxious to sell. I have seen lately many offers well below full price and it takes a delicate touch to try to meet somewhere in the middle. Here is what I try to do to give the offer the best chance to come together.
  • Do our homework – find out what is reasonable. What have other houses actually been selling for? How much is the average negotiation off of full price?
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  • Establish goals – What would be an acceptable outcome. Begin with the end in mind and you have a much better chance to get there.  Be realistic.
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  • Understand the situation – Try to understand what situation your counterpart is in. Understanding is power. With every contact, I try to learn a bit more about where the other people are coming from. Many times, after making an offer, it is the first counter that gives you the most information.
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  • Keep the lines of communication open – As a Realtor I need to represent my clients to the best of my ability, but I have found that being adversarial to the other side doesn’t get you anywhere. I try to keep on very good terms with the other agent. I find that this helps in coming to a successful closing. If we become adversarial along the way it is very hard solve all of those little details that come up between contract and closing. I try to treat other Realtors well, so the next time we are working together they can tell their clients I am easy to work with and to expect a smooth transaction.
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  • Remember that every situation is different – You never know what other people are thinking. You can guess someone’s motivations but you never know what are the true motives.  Don’t try to guess, try to learn, understand and adapt.
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  • Anticipate – I find that I am really able to help my clients by anticipating what may happen during a certain transaction. If we can talk about different scenarios before they happen they are easier to solve when they come up.
The Home Buying Process – Part 2 – Contract to Close

The Home Buying Process – Part 2 – Contract to Close

In Part 1 of this article I outlined the initial steps a buyer needs to take in the home buying process.  In this post I will explain what happens once a buyer finds “the” right home.

The Offer

patio with a viewAfter viewing a few homes or many homes, eventually you will narrow your choices down to one “best” house.  It’s time to make an offer.  Your Realtor’s expertise will now be most helpful.  Together you will evaluate not only the other homes on the market (the relative value of the other choices), you will research the value of the home in question.  A seller can ask anything they want from a home so it is important that your offer is based in reality, not a seller’s fantasy.  After checking the comparable sales it is a good idea to evaluate the position of the seller.  How much do they owe?  How long has the house been on the market?  Have they reduced the price?  What other clues do we know about motivation?  With all of this knowledge you can with your Realtor formulate an offer strategy.

Once the strategy is in place your Realtor will then prepare a written offer.  In Colorado we use a standardized form approved by the real estate commission.  Most of the contract is pre-written and we have just to fill in some blanks.  Your Realtor will advise you on reasonable contingency dates, contingencies, inclusions, financing and any additional provisions that are unique to this particular property.  Once the offer is written, the buyers sign and date the agreement.  The offer is then delivered to the listing agent and/or the sellers for review.

Earnest Money

So you will not be placed in an uncomfortable position when you purchase a property, an understanding of the earnest money deposit is important.  At the time a written offer is initiated, you will be required to include a personal check or cashiers check as a good faith deposit.  The check is deposited into the listing broker’s escrow account upon contract acceptance and will remain in escrow until the time of closing.  This amount is credited towards your closing costs and down payment at closing.  If the offer is not accepted, the deposit is returned to you.  The amount depends upon the sales price of the property.  The amount is negotiable, but a good rule of thumb is 1% or more of the offer price.  You can only loose your earnest money if you change your mind or if you do not perform to the dates or the provisions of the contract.  Your deposit will be returned to you if your loan is disapproved or an inspection resolution cannot be reached.   So long as these are done in a timely manner.

The Contract Gets Accepted – Now What?

After the buyer and seller reach agreement on the details of the contract and both have signed either the original offer or a subsequent counterproposal, the focus turns to fulfilling the various contingencies set forth in the contract.  The major contingencies are loan approval, inspection and title documentation.

The first order of business is to alert your lender and provide to them a copy of the contract.  At this point you will have the opportunity to lock-in an interest rate and firm-up the details of the loan program in which you will pursue.  As the lender prepares your file for submission to their underwriters you will be asked to provide documentation of assets, income and anything else they feel that they will need.  They will also be asking for money to pay for your credit report and appraisal.

Inspection

The inspection of your home is most important and setting up a general home inspection should be done as soon as possible after contract acceptance.  During the typical 10 day inspection period a buyer has the right to inspect the house, check on crime reports, check with the city regarding future development and any other inspections that any particular house may need.  After the inspections are complete the buyer has three options: terminate the contract, move forward with the house in as-is condition or provide the seller a list of unsatisfactory conditions.  The most common is the later.  Once a list is provided a negotiation ensues between seller and buyer to find an acceptable solution.  If an agreement is not met the buyer has two options: to let the contract expire or to waive all inspection objections and move forward as-is. To learn more about the inspection process click here.

In Colorado the seller is required to provide to the buyer title insurance which insures clean and merchantable title. Basically, the house must be transferred without any title disputes.  The title company will do a title search and disclose to the buyer any recorded documentation that will transfer with the house.  Common examples of the exceptions to title insurance are homeowners association covenants, development documentation and utility easements.

Appraisal

Your lender will order an appraisal on the property.  Having a third party asses the value, helps the mortgage company evaluate their risk in their investment.  If the appraisal comes in less than the purchase price (this is happening quite a bit), the buyer has three options: re-negotiate with the seller, put additional money down to keep the loan-to-value ratios in line, or to terminate the contract.

Final Walk-Through

Just before closing it is a contractual right for the buyer to do a final walk-through.  This is the time to check that all inspection items have been completed as well as check on the overall condition of the house.  If something were to happen to the house between inspection and closing the seller is obligated to fix it.

North Boulder HomeClosing

Once all of the contingencies have been met you are ready for closing.  The closing day is set forth in the original offer but the closing time is usually worked out by the Realtors about two weeks in advance.  The closing takes place at the title company and it usually takes a little more than an hour.  A day or so before closing the title company will provide to the buyer a settlement statement that will show exactly how much the buyer will need to bring to closing in the form of good funds.  Good funds can be a cashiers check or a bank to bank wire.  At the closing the title officer will guide the parties through the various documents which need to be signed.  After all of the signing is complete and all of the money is accounted for the place is yours!  It’s time to move in.

How to Buy a Home – Part 1 – What Happens First

How to Buy a Home – Part 1 – What Happens First

Rainbow over Boulder ColoradoMoving in to a new home is one of the more exciting things we can do. The process seems simple enough – choose a house, write a big check and then move right in.  Of course there is more to it.  In fact, after selling homes since 1992, I know that no two transactions are the same.  Knowing what to expect and doing it in the right order goes a long way towards archiving your goal.  The following is my home buying 101.

Have a Firm Financial Foundation:

The foundation of a successful home purchase begins long before the home search.  It begins with having a sound financial footprint.  In today’s credit environment, a buyer needs both good credit and a sizable down payment.  At least a few months before the contemplated purchase you should check your credit and make sure that there are not any surprises lurking.  The days of 100% loans are gone, so you will need at a minimum 3.5% (FHA loans) plus closing costs ready to put down.  If you are getting a conventional loan or buying investment property you will need a much larger down payment.

Covered PorchFind a Good Realtor

The internet gives you all of the information you could ever ask for at the click of a button.  But when it comes right down to it, you need the assistance of a professional who has been through the process time and time again.  Most people end up working with a Realtor, so why not engage one early on in the process?  Realtor’s have tools that will save you time and put you on the right track sooner.  I can set up an automatic email search and a password protected website that work together to give you all of the details about all of the houses you may be interested in.  A good Realtor will help you navigate the process, get you the information you need and allow you to concentrate on your family and your job.  Make sure you have found a Realtor who is more interested in helping you find a great house for the long haul rather than a quick sale for them.  It takes patience and persistence to make sure you get the job done right.

Get Pre-Approved

The next step in the process, before you even view a home is to find a good lender and get pre-approved.  Your Realtor should be able to recommend a few local lenders who have proven themselves to be responsive and know how to get the job done.  Using a local lender is important, not only are they accountable but they are there to solve problems at the closing table if anything comes up at the last minute.  Your earnest money is at stake!  If your lender is delayed at the last minute or their money doesn’t make it to the closing table on time and the seller chooses not to give you an extension, you lose your earnest money.  You cannot go back to your lender and recover those lost funds.  Choosing a lender is more than finding the lowest interest rate, it is finding an advisor who will help you make a sound financial decision given your unique circumstances.  The credit rules change often and it is important to use an experienced lender to help you get the job done in a timely manner.

birdhouses and flowersViewing Homes

The next step in the process is setting your criteria and starting to view homes.  At any one time there are hundreds if not thousands of homes available in any given area.  Believe me, you don’t have the time or the patience to see them all.  The broadest categories in which to sort homes are: location, price and size.  Your Realtor can narrow your search by using literally dozens of features but in the beginning it is best to keep it as broad as possible.  A good practice is to look at a good cross-section of homes and then communicate your likes and dislikes with your Realtor.  They will then be able to suggest other homes to see.  When viewing homes it is easy to get overwhelmed by information overload.  If you look at ten houses on a Saturday by the last few it is hard to remember if it was the second one or the fifth one that had the good view.  I like to keep it to six or fewer.  Take notes, ask questions and communicate your likes and dislikes.

Click here to view Part 2 which will take you from offer through closing.  To get started call Neil Kearney at 303-818-4055