“Look at rising mortgage – rates to play an even greater part in affordability, slowing the market for sellers and impacting buyers. Home prices are still expected to rise, though at a much slower rate than we’ve become accustomed to. Realtor.com forecasts home prices to increase by 2.2% nationally.” Forbes.com
TOP STORY: “Once Upon a Time
Remember the old joke where grandpa tells the kids how hard he had it, walking two miles to school, and uphill both ways? What would he think if you took him along to buy a house in 2017? It isn’t necessarily any easier or more difficult than in his day, but it is very different.
Fifty years ago, when grandpa (we’ll call him Jim), and our fictitious grandma, Carol, bought a house, every step was a lengthy one. One could buy a very nice home-in most parts of the country in 1967 for $30,000 – often much, less – but a 20% down payment was typical even then and saving $6,000 wasn’t easy on $7,200, the median annual household income.
Speaking the Language
While they saved their money, they scoured the Sunday newspaper’s classified ads. Most required a magnifying glass and a UN translator: E By, 2BR RR, HW & WW, EiK w/ptry, scrnpch, wtr VU OH 1-3,802-555-1234 for details.
They learned Real Estate Speak. Two- bedroom raised ranch is for sale on the city’s East Bay. Bathrooms aren’t mentioned, so there is only one. It has carpet and hardwood throughout, a screened porch, and an eat-in-kitchen with pantry. If you stand on tippy-toes you can see a pond behind the house across the street. Open house; call the agent for address and price.
By the time they save enough for a down – payment their tiny apartment is crowded by the arrival of a baby daughter, Alexis, and they are more than ready to move. Nancy, their real estate agent, works out of a small downtown office, sharing phones and desks with a half dozen other agents.
Nancy says she can show most of the houses in town; other agents are willing to share their listings and commissions.
She “qualifies” Jim and Carol with a few questions about his job and their savings, then brings out the office “Beauty Book;” a loose-leaf with pictures and flowery descriptions of her office’s listings and those sent from other offices. Some of the houses have probably sold, and prices might have changed on others. She will check when she calls to set up appointments.
Jim and Carol see a lot of houses and the tours can be cumbersome. Nancy often has to stop at the listing office to pick up and return keys, or coordinate a showing with the listing agent. Occasionally showings are possible via a combination lockbox – a device hanging on the front door knob containing the keys to the house. Many visits are a waste of time; the houses don’t do their descriptions justice.
Crossed Fingers and Sleepless Nights
Finally, they find “it,” a perfect three- bedroom ranch in a nice neighborhood. The house seems well maintained and the seller swears the roof is new and the furnace only two years old. They cross their fingers, make an offer which, after a counter and some back- and-forth, is accepted.
Nancy reminds them that their one – page purchase contract has a “drop dead” date for obtaining a mortgage, and shows them some rate sheets loan officers have dropped at the office. Each has several interest rates, each with various “points”. The combinations of the numbers change from one sheet to the next, and Jim begins to wonder if he is in over his head.
The local bank that holds their down- payment seems their best bet. They meet the loan officer, fill out an application and pay an application fee. The loan officer orders a credit report and appraisal and tells them the bank’s lending committee, which meets every other week, will approve their loan. Or not. Since it will take ten days to get a credit report the committee won’t review their application until the following month, so interest rates quoted might change. Meanwhile, the loan officer will verify their savings and check with Jim’s employer regarding his salary and likelihood of staying employed. They cross their fingers again and go home to wait.
The Weeks Pass…
There isn’t a peep from the bank for weeks, but finally a call; they are approved for a 20-year loan at 7.5%. After another month elapses for title and paper work, they return to the bank, pay their money and sign a promissory note and mortgage. Although the monthly payment is higher than they expected, they walk out exhausted, but with the keys to their very own home.
Fast Forward 25 Years
It is 1992, and baby Alexis, all grown up, has saved enough to buy a condo. She too starts with the Sunday paper, attends a few open houses, and meets Carl, an agent who works for a large national chain. He advises Alexis to first speak to a lender, learn her options and get prequalified. That will make her more comfortable about her ability to buy, he says, and give her a price range in which to look.
Her parents’ bank now offers many programs, including those through FHA, Freddie Mac, and Fannie Mae. To her delight, Shawn, the loan officer says that since FHA and private mortgage insurance programs require only 10% down; she can shop for higher priced properties than she had thought. With info about her job, salary, and expenses, and a “soft” credit report pulled from a computer, Shawn prequalifies her within minutes for a $98,000 loan, sufficient to buy most median priced condos.
Her home search is much like her parents’, although improving technology has smoothed some of the rough spots.
DORM FOR ADULTS
“Co-living is going mainstream. Big apartment developers are getting into the market, building rental units that could be called “dorms for adults.” The housing is designed to foster “social living.” Tenants rent bedrooms with “en suite” baths, sharing fully furnished kitchens and common areas, designed to foster interaction, with three or four other tenants within the unit. In many cases rent will be cheaper than a studio apartment and the tenant might only need to buy a bed.
The buildings themselves feature the typical amenities of luxury apartments and sometimes public Spaces like a coffee shop or a cocktail bar. One builder is planning 3,500 such units over the next five years.” Adele Peters, Fast Company
Carl brings out a loose-leaf that Nancy might have left behind, but the glossy sales sheets are now augmented by details from the local Multiple Listing Service’s (MLS’s) most recent listing book. It is published weekly, but Carl’s office updates critical information daily though a computer link.
As Alexis shops, Carl gives her frequent info on new listings and price changes and Alexis calls him when she sees new ads or for-sale signs. He actually has a phone in his car. Before long she falls in love with a renovated townhouse near her office.
Not Your Father’s Mortgage Process
Jim and Carol’s offer was one page; specifying price and occupancy dates, and a mortgage contingency clause. Alexis’ offer has a dozen legal and disclosure forms, several of which make her purchase contingent on acceptable inspections. A whole new industry was waiting to inform her whether her new home was safe, sound, and termite free.
Shawn also has forms – authorizations for verifying the information used to prequalify her – and a checklist of documents needed to approve her loan; tax returns, pay stubs, bank and brokerage statements. Her loan will be sold to investors, he said, requiring stringent underwriting and a lot more documentation.
As the loan is processed, the underwriter repeatedly requests more “stuff”; a letter explaining a late payment on a Sears account; a copy of the condo bylaws, more up-to-date paystubs. More than a month after applying, and only two days before the contract deadline, Alexis gets her commitment letter.
At the closing Alexis thought the papers would never stop flying past her – sign here, initial there. The title agent explained each in a practiced rapid-fire patter – this one lets the bank correct any scribner errors; that one authorizes an audit of loan documents; another one breaks out loan costs. She stopped listening and just kept signing, leaving the closing, keys in hand, vowing never again.
But townhouse ownership didn’t last long; she and her new husband soon traded up to a single-family house. Now, 25 years later, with kids off to college, they are about to…
Enter Today’s Homebuying World
Everyone knows that the house hunting starts on the internet and Alexis and husband Greg are avid computer geeks. For fun, they check out a few houses in Ireland and Japan then start their serious search one county away. The on-line tools are amazing. House descriptions go well beyond the bare bones (RR, 2BR, etc.).There are slide shows of entire interiors and video tours. The couple quickly discover they can tour whole neighborhoods with applications like Google Street and, while it was no longer important to them, get details on student test scores and teacher ratios at local schools.
After several evenings on line they narrow their wish list to a newer home, an open floor plan, and at least 2-1/2 baths and a real estate agent whose personal webpage stands out. Laurel has listings in neighborhoods they like, and is certified both as a buyer-agent and in green construction, which is of particular interest to Greg.
Technology had wrought a lot of changes in lending too. Getting a credit report and score was nearly instantaneous, and Sandy, the loan officer, just as quickly matched their information to two loan products among dozens the bank offered, and suggested strategies should they find a new home before selling their current one. They left the bank with a pre-approval that virtually guaranteed their financing.
NOTHING IS FOREVER
A survey by homebuilder Taylor Morrison found that fewer than half of homebuyers today believe in the idea of a “forever home,” or a home that they will inhabit throughout their lifetime. Fifty-six percent called the concept outdated.
Among millennials, 58% plan to change homes as they age and as their lifestyles change and one-third said they plan to live in their next home for less than a decade. Eighty percent of millennials said they would prefer a new home over an existing property with more than a quarter of those citing floor plans that were more compatible with their lifestyles. –Mary Tyler March, Construction Dive
Will the last person leaving California please turn out the lights? That old joke emerges from “snippets of demographic data” suggesting that Californians are moving elsewhere in droves. However, we are reminded that the state is huge: 38.7 million people in 2015, and per capita is an important perspective.
From 2010 to 2015, 3.2 million people left the state (Texas lost 2.5 million), but the average annual rate of 1.55%, was the lowest in the nation. At the same time the state absorbed 2.9 million people from other states, resulting in net out-migration of 3 persons per 100,000 in population. Fourteen states were higher. Johathan Lansner, Orange County Register
House hunting was equally easy. Laurel checked the listings they had identified, suggested a few others, and arranged appointments; electronically controlled lockboxes at many homes made access easy. They whizzed through six homes in an afternoon and just as Laurel was locking the last door her phone beeped. “I think this is your house,” she said. And she was right.
Even though lending standards were tight, and a lot of documents required, obtaining and providing them was nearly seamless. On-line housing data helped halve appraisal time; Alexis and Greg could email PDFs of their taxes, and automated underwriting software verified employment and other information. Sandy had constant access to interest rates and gave good advice about “locking-in.” They almost immediately had a complete breakdown on their loan, including closing costs, interest rates, and monthly payments, and a closing date three weeks later.
She promised the closing would be equally as smooth and transparent. Final loan documents would be ready three days in advance, plenty of time to review and ask questions. In fact, she said, the little bank that had taken months to approve her parents’ loan and had nearly driven her nuts with paperwork was now piloting a program where they could close their loan on line, nowhere near a closing table.
In a lot of ways, buying a home is more complicated than it was in grandpa’s day. There is certainly a lot more paperwork, and the variety of choices for financing can be mind boggling. But technology, competition, and improvements in consumer protections have made every part of the process faster and more efficient, more clear-cut and less worrisome.
Homebuying certainly isn’t a push-button process, but with the help of knowledgeable real estate and mortgage professionals, it is certainly more streamlined and more transparent.