Nearly 80% of those homeowners with a mortgage are spending less than 35% of their income on housing costs? That sounds like a solid, secure market. Renters should talk to their parents or grandparents about early distribution of their estate:
American homeowners aren’t feeling the pinch from housing costs like they used to — but that’s not necessarily reason to celebrate.
Only 20.9% of homeowners with a mortgage were cost-burdened as of 2018, meaning that they spent at least 35% of their monthly household income on housing costs, according to new data from the U.S. Census Bureau’s American Community Survey. That’s down from 28.8% a decade earlier, just as the financial crisis was reaching its fever point.
And the number of cities where a significant share of homeowners are cost-burdened has dwindled. In 2008, at least 40% of homeowners with a mortgage were burdened across 43 metro areas nationwide. Today, there are no cities where that’s the case.
While homeowners may be less burdened by housing costs, fewer people actually own their homes. Ten years ago, the home-ownership rate was 67.9%, but now it’s 64.8%.
Many of those people who are no longer homeowners have been pushed into the rental market. The country’s rental population has also grown to its largest size ever for as rising home prices and student-loan debt have forced young adults to delay homeownership.
And housing costs remain a major burden for renters, unlike homeowners. The Census Bureau estimated that 40.6% of renters spent 35% or more of their monthly household income on rent and utility bills in 2018. That’s roughly the same share of people as in 2008 (40.8%), but represents more people due to the growth of the country’s rental population.
Households that are forced to pay so much on rent have a harder time saving money to put towards the down payment for a home purchase, making it more difficult to make the transition from renter to homeowner.
With prices so high now, everyone knows that it’s smart to fully upgrade your house before selling – at least when possible. But not many sellers do, so buyers get as close as they can and then deal with the rest. My general rule-of-thumb still applies – expect to spend another $25,000 to $50,000 for upgrading any house you buy!
We are happy to assist our buyers with those upgrades too!
Here are photos of a newer but normal tract house that our buyer thought needed some pizzazz, so Donna coordinated the work before our buyer moved to town.
The TV was on a large, barren wall, and adding an electric fireplace gave it a traditional feel. But instead of installing it flush, let’s build it out to add some dimension:
This electric appliance kicks out steady heat and has 50+ color combinations!
The kitchen had an off-white antique finish to the cabinets, which looks dirty after a few years. Let’s paint those light gray, change the cabinet pulls, add some modern stools, class up those pendant lights, and install a built-in fridge too:
The master bathroom was base grade:
Let’s ditch the basic wall mirror/medicine cabinet and combo them up instead – with lighting!
How about this new closet by Top Shelf Pull Outs for about $6,500!
Note to self – always take two photos in case someone has their eyes closed!
My friends and clients who bought a La Jolla fixer and did a phenomenal remodel are featured in the latest edition of San Diego Home & Garden Magazine. It’s not online, but I found a copy at Barnes & Noble!
This will probably be the last detached-home tract priced under $1,000,000 in SW Carlsbad. Solar is included on all new homes now (starting in 2020), and these are Aviara Oaks schools which goes through 8th grade, then Carlsbad or Sage Creek High Schools. Take your favorite realtor with you!
In today’s market, sellers should consider an offer that is contingent upon the sale of the buyers’ home.
If the seller’s home has been on the market for 30+ days, the showings have probably slowed down – and a contingent offer might be the only hope of getting a sale done this year.
Above is a copy of the form we use – the Form COP. Paragraphs 1-7 are self-explanatory, and Paragraph 8 is where the fun begins.
Buyers include this form with their purchase offer, so they go first on completing #8.
If you don’t touch it, then once the offer is accepted, Paragraph 8A applies – and the seller can cancel this sale within three days if an acceptable back-up offer is received.
Paragraph 8A isn’t favorable to the buyers, so they should check Paragraph 8B and buy more time.
Once checked, the form gives the buyers a 17-day period where they can’t get cancelled, and you can also fill in the blank to dictate a longer period – OR check the last box and lock out all other offers for the duration. The sellers probably won’t go for that option though.
If buyers request a period longer than 17 days, the sellers will probably counter-offer with a shorter time period – and even the boilerplated 17 days might be too long if the listing agent is compelled to throw their weight around and show everyone who the boss is.
You can probably get a contingent offer accepted today, but it will include the threat of getting cancelled in the first 10-17 days if a non-contingent offer is received.
Buyers making a contingent offer need to have their house ready to sell!
You don’t want to waste the first few days of your exclusive period on house-cleaning and clutter patrol! Though it isn’t that likely that the seller will get another offer if they’ve already been languishing on the market, you don’t want to chance it.
Buyers making a contingent offer are smart to have their house ready to hit the open market right away – preferably, on the day of acceptance. Plan ahead!
Let’s also note that mortgage guidelines allow for parents to contribute the entire 20% down payment. Hat tip to SM for sending in this article on the Bank of Mom & Dad!
Buying a home is increasingly a multigenerational family affair. Four in 10 parents recently surveyed said they expect to help their children buy a home. That’s more than double the percentage of parents who themselves got help from their parents when they bought their first home.
Home prices that have been rising faster than wages, combined with burdensome levels of student debt, are fueling this trend. Moreover, helping with home ownership is a here-and-now assist that can transform a child’s financial life, rather than waiting to bequeath money down the line.
Whether you are the Bank of Mom and Dad or the adult child eager to buy, a successful intra-family deal requires careful consideration of the various options:
Can you afford it? OK, parents, it is hereby stipulated that you, of course, want to help. Now the hard question: Can you cope with the long-term ramifications?
A $10,000 gift you make at age 65 would be worth more than $26,000 at age 85 if it kept growing at a 5% annualized rate. A $50,000 housing stake today would be worth more than $130,000 at age 85. If you have any inkling you could use that extra cushion in retirement, you probably shouldn’t be gifting money today. You could consider making it a loan – more on this below – but also keep in mind that if you intend to pull the money out of a traditional 401(k) or IRA, you not only will owe taxes, but a large withdrawal could bump you into a higher tax bracket for the year.
Got a boomeranger at home? Help them save for a down payment. According to the Pew Research Center, about 15% of today’s millennials are living at home, nearly double the rate when their parents were in their 20s and 30s. Making it a financial free ride does nothing to help your child build adulting muscles. If they’re focused on paying off student loans, great. But if they have ample cash flow and want to eventually buy a home, now’s the time they should start to save. You should insist that they set up a separate savings account and have automatic monthly deposits zapped into it from their checking account. A $500 monthly contribution is a down payment fund of more than $6,000 in just one year. That can be more than enough to qualify for a low down payment mortgage in many regions of the U.S.
I describe the strategy for sellers here, because buyers need to be on alert 12 months out of the year. Why? Because you only care about buying the right house at the right price – which isn’t affected by the general market conditions. You are looking for the one-off.
"Jim and Donna Klinge are by far the most professional, personable and responsive realtors I have ever worked with. They provide VIP concierge level service in every area of the process of selling your home. My home was marketed so successfully that we received an offer the day after our first and only open house. Thanks to Jim's pricing and negotiating, our house is now the highest sold in our community... more "
by Ann Romanello
"Jim educated us, helped us find the perfect house, and then negotiated us a great deal. I would hate to be sitting across the negotiating table from ... more "
"Jim is thorough and will be brutally honest about the homes he shows you. He provides great service and follows through until the very end and even ... more "
"I highly recommend Jim as a buyer’s agent. Working with Jim, we closed this week on a San Diego condo. Jim prepared a list of comparable sales to ... more "