Saturday, September 7, 2013
"Honey, we can finally afford that divorce."
My regular readers understand that I am pretty conservative, quite a bit more old-fashioned than the young-folks who elected our president. So I was pleased that one of the very few good things to come out of the recent long-term recession was that fewer divorces were being filed. My wife and I are passing 43 years of marriage and I can tell you I understand it's not all a bed of roses. But we have hung in so long that our kids tell us when they review their friends, we are about the only parents they can point to who are still married. Anyway, getting back to divorces, as it turns out about the only asset that disgruntled couples have to "split" is the equity in their home. So during the recession, when there was no equity, there was no financial reason to get a divorce--and as we all know, Americans won't do anything unless the money is right. Well the money is right all of a sudden. The market is coming back and so are the divorces, now that home values are back to their 2003-4 values. I wrote a column a few years back about a couple I had done some real estate work for. Actually they are married to each other and both are lawyers. Their legal practice focused on divorces, and due to the recession, had weakened so much that they were in jeopardy of losing an investment home they owned in North Port to foreclosure. As it turned out, they were able to pull off an 11th hour short-sale, but due to their other holdings, they had to make up the deficiency amount (the difference between the amount owed and the sale proceeds). These outcomes are reason enough for many people to hold back on their future investments, even though there are some great home values out there right now. Which brings me to the headlines in our local papers. You would think if you reviewed a week's worth of headlines that housing values are up, no wait, down--and affordability and mortgage rates are up, no wait, they're down too, and new homes are selling like hot cakes, no wait, maybe not. What is really going on? Well it all depends where you sit. If you are a simple newspaper reader, you must be totally confused. Let's look at our area, (and by our area I mean zip 34223, 34224 and maybe a peppering of North Port and Venice). Prices are growing back up a bit, so if you are thinking of selling, the likely-hood of selling your home for an appropriate price in the next 5 or 6 months is pretty good--as long as there has been regular maintenance and the neighborhood is not threadbare. If you are thinking of buying, today there is a limited inventory, but generally it's fairly priced, and today much less of the inventory is offered by a bank or lender, so any offers you are considering making are welcomed and will be negotiated quickly. If you are still waiting for the market to hit bottom, you missed that opportunity, which actually occurred about 18 months ago, so you are SOL. If you are thinking of buying a new home, remember the data that gets into the newspapers is probably national in scope, or if the paper is tying to do a really good job, the data could be statewide. My point is that our area is different from the state-wide data or the national data. Here there are perhaps 5 or 6 builders building homes right now. I have had a chance to talk to most of them and can report some of them have sold all the homes they can build for the next year (so new starts will be recorded, but are already contracted) other local builders may have larger crews and will continue to build homes that could be sold right away, but these are not affecting the available inventory in a significant way. My message here is--don't take the information you see in the larger papers as being accurate here in our area. Rates are going up, yes. But the new higher rates are still lower than most of us expect will be the norm in a year or two, so if rates are your "hot button" buy now. These rates will go up for a few more years and likely at that time, they will level off in the 6-7% range. Today you can fin 3.5% if you want a 10 year or even a 15 year mortgage. Think 4.25 for a 30 year mortgage. Actually "jumbo" mortgages are available in the 4.25% as well, so if you're chasing down a $750,000 home, get it now. Here's a quick way to figure out what a 6% mortgage would cost you on a monthly basis. At 6% annually, you pay 1% per month, so a $100,000 mortgage costs $1,000 per month. If you wait for a year or two when the mortgages are back at 6% to buy a $200,000 home, your mortgage will be $2,000/month. (Remember this includes interest AND principle). Affordability rates are really easy to mis-report. How about this: home prices have gone up 12% but salaries have only increased by 2%. So the Affordability index indicates that home sales will take a nosedive. Well, here's the deal,that kind of reporting is done by a recent college graduate who is reading the Associate Press releases for that day. In fact, homes have been undervalued for long enough so that as the prices grow, sellers will lower their asking prices if the homes don't sell. Home prices always will come down to find the first buyer. Banks used to determine what you could afford would be about three times your annual family salary. So if a couple each are making $35K, they could afford a home in the $210,000 range. Plus or minus, depending on condition, location, desirability of the school system and neighborhood. As I say, affordability is in the eye of the buyer. So what's our area's real estate market looking like? Let's say it's much better than the bad headlines, and a little worse than the good ones. Dane Hahn is a real estate professional serving our area, including Sarasota and Charlotte Counties. Reach him at email@example.com or 941-681-0312. See him on the net at www.danesellsflorida.com