Friday, November 17, 2017

Wow, Holidays... again.

Well the Holidays are upon us and it's time to talk about selling and buying a house in the Holiday season. I have said it again and again, buyers are serious when they are looking at houses between Thanksgiving and the New Year. This is not an ideal time to be outside driving around in strange neighborhoods looking for houses. Yet every year there they are doing just that. Buyers that NEED to buy a house. Many sellers do postpone listing and this can be wise but it can also be a mistake.

Should a home received an acceptable offer during the month of December it is likely that house sale will close in late January or the middle of February. The seller now has an opportunity to look for a replacement house in January when fewer buyers are about and sellers are often motivated. It can be a win-win. Below is last year's comments on selling in the "season".

Originally posted, Friday, November 20th, 2016, by Rod Sager

Sellers often choose to forgo listing their home until after the holidays. It is understandable since most of us would like to take this time of year to spend with family and such. Having a home on the market can be most disruptive. But inventory remains tight, especially in the bottom half of the price range.

People that are out looking for homes during the holiday season are generally pretty darn serious buyers. Looky-loos and tire-kickers are doing the whole holiday thing. Having a home listed during the holidays can yield strong offers from serious buyers. Really, who is out in the rain and snow looking at houses when they could be inside hanging out with family and friends or at the company party? Real buyers, that's who!

I have offered up tips in the past about prepping a home for a holiday sale, you can look through the archives of Novembers and Decembers past to find useful information on the matter. In general, keep the clutter to a minimum, keep the leaves off the walkways, out of the rain gutters, and off the drive way. If it snows, be sure to keep snow and ice off the walkways and driveway.

Keep pet orders under control. Burn a scented candle with a holiday theme, bake some cookies, and if possible have a fire going during peak showing times. Some people are looking for a very specific house. If your house isn't it, then chances are no amount of warm and fuzzy presentation will sway them. But most buyers are less picky. If your house feels like home, they might just write it up!

I find buyers to be more focused and serious about their purchase during the holidays. Sellers are wise to keep that in mind when making the decision about whether to list now or wait till next year.

Happy holidays, may yours be warm and fuzzy all around.

Friday, November 10, 2017

A New Market is Emerging

Pay close attention to this headline. A new market? Yes a new market. I am a representative of the last or youngest of the Baby Boomer generation and I have been being 'harassed', imagine a winky emoji here, by AARP for several years already. Baby Boomers have not been driving the real estate market for three or four years. In fact Boomers are rapidly falling in the market as many have already settled into that "final" house. Kids are gone, they downsizing, the whole enchilada of retirement or empty nesting.

It has been Millennials driving the market and as buyers they represent more than a third of all housing transactions. This generation of young adults is often maligned by the Baby Boomers and often in an unfair way. I am the father of two adult Millennials who like me are at the "young" end of their generation. There are many projections pushed out in the media that Millennials are lazy and living at home well into adulthood, failing to "grow up" et al. Mostly that is B.S.

If one dives into the data beyond the surface, one will find that Millennials have a much harder time getting out on their own due largely to outside economic circumstances rather than any failure to "Grow Up". Sure, being a part of the "participation trophy" era definitely didn't help, but the over-consumption driven economy of their parents is much more to blame. Wages in the US have been stagnant for two decades now and the cost of housing, taxes, and most non-tech products have outpaced income. Millennials, no matter how motivated, will have a tougher time "adulting" than us Boomers had. The deck is stacked against them, but they are holding some good cards to play.

Millennials find themselves facing heavy college debt or low paying non-college degree jobs if they don't have to aptitude for skilled positions like electricians or plumbing, etc. This creates a difficult transition and Millennials often need an extra five years to get on solid financial footing. Millennials are less likely to rush out into the world and fail financially, and this added to the aforementioned higher cost of living, is why we see a longer stay at home period.

The upside is that these young Americans aged roughly from 20-38 are proving to be rather frugal. Not in an annoyingly stingy way, but in a smart financial management sort of way. Surprise! Millennials are going to have savings values more akin to the WWII or 'Greatest' generation than their Boomer parents. Boomers have been a huge consumer driven group and generally poor savers, Millennials are proving to be savvy savers and this is a very good thing indeed.

What does this mean to the real state market? It means that Millennials will continue to drive the market and will likely have nearly half the market share of transactions by the early 2020s. They are now becoming a heavy market influence as did their Boomer predecessors. They however, unlike their parents, are practical, frugal, and well informed. They will be patient, they will save for a down payment, and they will be amazing home buyers.

Builders are in for an abrupt kick in the teeth at least locally. They continue to build giant expensive houses that are more in tune with what Boomers were buying twenty years ago. Boomers are downsizing and many builders are ignoring the fact that Millennials are far less likely to have a large family of more than two kids, and are less capable of buying a "big" expensive house. Sure Millennials would love to have the space, but they are proving to be more cautious with their borrowing.

Millennials with a couple of kids will likely buy more modest homes than their parents. The 2500 plus square foot homes are less appealing to them not because they don't want the space, research says they do want big houses. They are likely to buy a smaller 1600-2000 SF, but nicer quality home, than the cheaply constructed 1990s 'big -n-crappy' homes that dot the landscape of decades past. Millennials are late to the market and many are skipping the 'starter' homes. But in our local high cost market, they are finding that starter homes are all they can swing financially.

Builders need to look ten years ahead yet they are only looking at next year. This bodes well for resale houses as Millennials will buy what they think they can afford. I see this group of young people often spending less than the bank will lend them and that is wise beyond their years. This is in harsh contrast to Boomers and Gen Xers that were spending every last penny their credit would afford them.

A new market is emerging and it is a market looking for practical use of space, modest but spacious dimensions, and high build quality. It is a market filled with people that can actually save for a down payment. This new market is filled with buyers looking for value and demanding quality. These are not bad traits my friends, these are the strong traits of their great grandparents rather than the consumption mentality of the Boomers. Although I have seen a great deal of market data suggesting the Millennial buyers want a big house, they also want to spend less than the bank will lend them, they are frugal, and they appreciate quality. Something has to give and based on the high cost of living locally it is the size of the house that they will skimp on, not quality or value.

For Millennials in the entry level price ranges of expensive markets like our local area, they may have to push the limits of their borrowing capacity. They may not like it, but they will benefit in the long run. Millennials are driving the prices of smaller entry level resale properties up because builders locally are not building what they can afford or are willing to pay. Oddly enough, older Boomers are seeking the same properties as Millennials. Boomers are downsizing and Millennials are practical. It seems we are moving back into a 1960s style of three beds and pair of baths for a large swath of America, Boomers that didn't save enough for retirement and Millennials that can't bust out the big cash of our expensive market. Builders better wise up. because a frugal, practical, and savvy group is coming their way.

Now I am not suggesting that the sizes will return to the 800-1200 foot range of decades long past, but smaller is the new world order in high cost markets like ours. Boomers complain that Millennials want it all and they want it for less. With 80 million of them entering peak earning years over the next ten years, they will drive the market to them. Builders will need to find a way to provide large living spaces with a look and feel of yesteryear while maximizing land use and cost per foot. It's a tall order but it needs to be filled. Get ready America, a new market is emerging, and it looks a bit like the mid-century market we had 50 years ago. It's just that the group is 30 somethings, rather than 20 somethings this go round.

Friday, November 3, 2017

Home Warranties Are Generally Good To Have

I am and have been a strong advocate for home warranties when purchasing a resale home. There are a lot of competitors in the marketplace and that has led to reasonable pricing. Typically a one year home warranty in our local market (Clark County, Washington) runs in the $375-$450 price range. The various companies all try to position them selves ideally in the market and that means that prices and coverage will vary. Which it the best for any individual is a bit subjective.

Objectively, these warranties often cover a great deal of potential problems in the home. Everyone should hire a professional home inspector and I have advocated for that as well on this blog. But home inspectors cannot see the future and what is working fine on inspection day could fail a few months down the road.

My experience with these warranty plans is mostly positive. bear in mind that the insurance company is not going to warranty an item that was already bad when you bought the house. Buyers should hold onto the inspection report as a claim made in the first few weeks of ownership will likely throw a red flag to the insurance company. The inspection showing proper functionality would serve to alleviate any issues an adjuster might have with the claim.

I have found that these warranties are highly valuable. They are relatively inexpensive if you think about it. $400 against a purchase that locally is almost assuredly over $300,000. Should a major issue occur such as a failed furnace or major appliance in the home the cost will be return multi-fold. If nothing happens in the first year the money wasn't wasted and I generally don't complain when nothing breaks in house. I am not sitting about whining about how perfect everything works, "Gee, I wish something would break, I am so bored..." Yeah, that isn't how life works. If nothing fails it's a big Gold Win, If something does fail, the insurance picks up the tab. Win.

These programs typically have a small service fee associated with a claim. $50 or $75 tends to be a common amount. The insurance company then pays to fix or replace the item. I personally had a furnace fail on a house I bought back in the 1990s. I had paid for a warranty and they came out and replaced the entire furnace. It was a $3000 job back in the day and I had paid around $300-$350 for the policy. That is the only claim I every made on a home warranty plan but that one claim has paid for every other policy I ever bought with a stack of cash as change.

Buyers should research the various companies a choose the plan best for them. Cheaper is not always better so pay close attention to what the basic coverage includes and what costs extra before choosing a plan. My experience is that most of these warranty companies have a solid claims service, but do your own checking and pick the best plan for you.

One final note about the difference between Homeowners Insurance and a Home Warranty Plan. They are two completely different things. homeowners insurance protects you and the bank lending on the home from disasters like a house fire, flood, earthquake, tree falling into house, etc. They absolutely DO NOT warranty anything in the home. If your home burns to the ground in a fire, the insurance company pays to rebuild the house and replace lost personal items that you have covered up to whatever policy limits you pay for. The home warranty pays to fix things that fail or wear out.

I highly recommend home warranties. Below are just a few companies offering plans. I am not affiliated with or making a specific recommendation for any of these, but I have some experience with all listed and they have been generally favorable.