Throughout the state, we are seeing our real estate market return to a ‘traditional market’ where as we see normal sellers listing their homes and buyers having a selection of nice, updated homes that actually show pride of ownership. It’s a far cry from the past five+ years where the REO foreclosure and Short sale markets provided so many AS-IS sales and homes that needed everything from landscaping to new appliances!
Because of the financing restrictions placed on homeowners that lost their homes to foreclosure or a short sale, the past homeowners were forced to become renters once more. Many cities observed a hike in rental rates because of the supply in demand caused by the large numbers of foreclosures at one time. Modesto and Stockton, Ca. were two areas hit the hardest with hundreds of foreclosures happening at one time. Still today, a large majority of past homeowners are still renting even though they have now reached the maturity time period set by FHA and Conventional lending programs to repurchase.
Renters who once owned a home need to understand that they are not alone, and different from the past, qualifying is much more ‘real’ in the sense that the requirements have tightened up – for good reason. Many of the past loan programs caused the destruction of the home ownership beliefs for thousands of people. The new lender guidelines are in position to protect families so that we avoid the past devastation and move forward with more confidence.
That being said, what has changed in real estate following the recovery of the ‘foreclosure real estate market’?
- The most obvious is the financing options. Loan qualifying is more involved so it’s important to start the qualifying process early. There are banks, credit unions, loan brokers and mortgage lenders – all have similar products and guidelines yet in most cases it all comes down to the experience of the lender. Always interview at least two prior to committing to one.
- Beginning the home search. Yes, 94% are online looking for homes before they connect with an agent to help them. As the online experience grows, it’s important to know that not all websites are accurate. Many property search sites such as Zillow and Trulia have the most selection, although most of the material is not up-to-date. The only true source is from a direct MLS (Multiple Listing Service) feed. RE/MAX.com, Homesearch209.com and a number of other real estate direct sites offer accurate property searches so you don’t waste your time calling on homes that are no longer available.
- Choosing an agent is even more important than before. Over the past 7 years, I witnessed many real estate agents became part-time. Only the best agents made it through the storm of the foreclosure market as full-time agents. With a new and revised residential Purchase contract in California, it is critical to work with an agent that has years of experience and added knowledge. Look for extra credentials such as a Brokers license, a GRI or a CRS certification, because an agent with added education has proven to take their job more seriously and at a time of transition, it will be your best move.
- Disclosures are back and better than before! Never underestimate the power of a good ‘Home Inspector’. Many of the homes purchased over the past 7 years were sold as-is or with little to no disclosure. These homes were bank owned in most cases, making the seller exempt from disclosing facts of the property. So the point is, some problems have never been addressed and years later the current owner may hope to pass on the problems to you. The seller disclosure forms have also been revised and designed to protect the buyer as well, so count on your real estate agent to explain them and request them early on in a sale for your review.
- Taxes…and assessments! More attention is drawn to the assessments cities are adding on to properties. Early disclosure on this area helps the buyer determine if the home is the right one for them. We have seen examples where one neighborhood has little to no assessments and across the street, the new home has a $1,500 a year fire bond assessment. This added cost can more than shock a buyer if found out to late in the process. So again, a good agent will be there to investigate items like this.
Remember the reasons why you originally bought your last home. Today the most important reasons to repurchase a home are:
Pride of Ownership. Pride of ownership is the number one reason why people yearn to own their home. It means you can paint the walls any color you desire, turn up the volume on your stereo, attach permanent fixtures, and decorate your home according to your own taste. Home ownership gives you and your family a sense of stability and security. It’s an investment into the future.
Appreciation. although real estate moves in cycles, sometimes up, sometimes down, over the years, real estate has consistently appreciated. The Office of Federal Housing Enterprise Oversight tracks the movements of single family home values across the country. Its ‘House Price Index’ breaks down the changes by region and metropolitan area. Many people view their home as a hedge against inflation.
Mortgage Interest Deductions. Home ownership is a superb tax shelter and our tax rates favor homeowners.
Property Tax Deductions. Real estate property taxes for first home and vacation homes are fully deductible. Taxes can also only rise 2% a year or the rate of inflation, which is ever less.
Capital Gain Exclusion. as long as you have lived in your home for two of the past five years, you can exclude up to $250,000 for an individual or %500,000 for a married couple of profit from capitol gains.
Preferential Tax Treatment. Capital assessments receive preferred treatment. If you receive more profit than the allowable exclusion upon the sale of your home, that profit will be considered a capital asset as long as you owned your home for more than one year.
Mortgage Reduction Builds Equity. Each month, part of your monthly payment is applied to the principal balance of your loan, which reduces obligation. When we rent, we never have this opportunity
Equity Loans. Consumers who carry credit card balances cannot deduct the interest paid, which can cost as much as 18% to 22%. Equity loan interest is often much less and it is deductible. Consumers can barrow against their home’s equity for a variety of reasons such as home improvement, college, medical or starting a new business.
Look forward to buying a home again and get back into home ownership in 2015!