Builders Warming Up to Smaller Homes

Builders Warming Up to Smaller Homes

Competition is heating up among millennials and baby boomers for smaller, more affordable homes. But builders have been slow to meet demand. That may be showing signs of changing.

Home sizes are beginning to shrink, which may also, in turn, help prices edge down some too.

“We are starting to see [smaller] starter homes come back,” says Rick Palacios Jr., director of research at John Burns Real Estate Consulting.

The uptick started slightly in mid-2016 as employment and wages rose.

More buyers are “now in that life stage of their early 30s [where] they’ve got a good job now, they’re getting married, they’re having kids,” Palacios says.

Some builders are heading farther from cities, where land is cheaper. Or they may construct more homes on smaller lots or build a line of attached townhouses.

“A builder can’t pay through the nose for land and then build a starter home on that land,” Palacios says. “It just doesn’t pencil out for them. [We’ve] started to see more builders gaining confidence in building lower-priced, smaller homes.”

Nearly 29 percent of the homes built between 2010 and 2015 were 3,000 square feet or more—hardly small by any standards. More builders focused on the high end of the market following the recession and built fewer smaller homes. Census data shows that 14.72 percent of new homes in the 1990s were between 1,000 and 1,499 square feet. Between 2010 to 2015, that percentage shrunk to 9.75 percent.

Robert Dietz, chief economist at the National Association of Home Builders, projects about 850,000 new homes will be constructed this year, even though the market could really support about 1.2 million new homes.

An uptick in smaller homes is “not something that can be fixed overnight,” he notes. “It’s going to take a while.”

Source: “Tiny Might Be Trendy, But Homebuilders Have Been Thinking Big – Until Now,” realtor.com® (July 13, 2017)

Mortgage Tips for Newbie Buyers

Mortgage Tips for Newbie Buyers

The more your home buyers know about mortgages, the better prepared they’ll be. The Motley Fool recently featured a range of mortgage tips to help educate first-time buyers, including:

Know their credit score. The credit score can be a big key to knowing how much buyers can afford and how much interest they’ll be paying. Home shoppers should be encouraged to check their credit report and FICO score before even starting the homebuying process.

Estimate how much can be borrowed. Lenders generally don’t like to see a monthly housing payment—one that includes taxes and insurances—that’s more than 28 percent of a pretax income. The percentage threshold often cited for total debt—which includes the mortgage payment—is then no more than 36 percent. Some lenders will offer differing percentages but these are the most commonly used.

Gather the docs. Buyers will need documents showing their income, employment situation, identity, and more when applying for a mortgage. Encourage them to start collecting their latest tax returns, bank and brokerage statements, pay stubs, W-2s, Social Security card, marriage license (if applicable), and contact numbers for their employer’s HR department.

Get pre-approved. A preapproval is similar to a full mortgage approval and can be submitted with an offer on a home. It shows the seller the seriousness of the buyer, who has already secured financing to purchase the house.

Add up closing costs. Closing costs generally range from 2 to 3 percent of a mortgage principal amount. Make sure your buyers factor in closing costs to their overall homebuying budget.

Shop around. Buyers should be encouraged to gather several quotes from mortgage lenders; it could be worth thousands of dollars in savings over the course of a 30-year mortgage. Mortgage applications that take place over a short period of time won’t have an adverse effect on a credit score either, The Motley Fool notes.

View the full list of 15 mortgage tips at The Motley Fool.

Source: “15 Mortgage Tips for First-Time Homebuyers,” The Motley Fool (July 6, 2017)

Expensive Items New Homeowners Buy

Expensive Items New Homeowners Buy

Furniture, appliances, and remodeling projects are among the biggest expenses for new homeowners, who spend an average of $10,600 in the first year of home ownership, according to a recent analysis by the National Association of Home Builders. New owners spend an average of $3,778 on furnishings alone, according to NAHB’s analysis. Here are a few common expenditures recent home buyers made:

• Living room chairs and tables: $687
• Dining room and kitchen furniture: $345
• Window coverings: $215
• Sofas: $700
• Property alterations and repairs (particularly outdoor additions and alterations such as a new driveway, walkway, or fence): $3,729
• Appliances (particularly washers and dryers, lawnmowers and other yard equipment, and computer hardware and systems): $3,094

“The high level of spending by new home buyers may seem surprising—considering that many new homes come with installed appliances—but suggests that these purchases are nevertheless more frequent among these households,” the NAHB notes on its blog, Eye on Housing. A survey conducted by Home Innovation Research Labs shows that two-thirds of new homes built in 2015 came with no washer or dryer; 36 percent had no refrigerators. Most new homes, however, did come with cooking stoves, ranges, and ovens.

Source: “What Do Home Buyers Buy After Moving,” National Association of Home Builders’ Eye on Housing blog (July 13, 2017)

Faulty Solar Installs Cause Leaky Roofs

Faulty Solar Installs Cause Leaky Roofs

Rooftop solar power installations are booming, says Abigail Ross Hopper, president and CEO of the Solar Energy Industries Association. The panels may have a more affordable price tag than in previous years, but the installations are coming with another price: leaky roofs.

The Solar Energy Industries Association says many homeowners are not using professional roofers to install their solar panels and that’s causing growing reports of “messed-up and screwed-up” roofs.

The solar industry “has adopted a number of best practices to maximize the durability of roof penetrations,” says Barry Cinnamon, who hosts a renewable energy podcast and is the former owner of Akeena Solar. “But these practices are not always followed, resulting in roof leaks and potential hazards from loosened solar panels. If these leaks happen, it’s usually a roofer who is called in to repair the damage.”

While installing, contractors might drag the heavy panels across the roof and ultimately damage it. “Dropped tools, panels getting dragged across the roof’s surface, or other negligent use of the roof’s surface can lead to leaks and holes,” writes Lennie Moreno, founder and CEO of Sofdesk, a web app provider for solar and roofing companies. “It could take years, but a careless installation of solar panels could end up resulting in huge repair bills that could have easily been avoided.”

Aaron Nitzkin, CEO of Solar Roof Dynamics, says that one rainstorm in California last year caused as many as 40 percent of solar-supporting roofs to leak.

“When you’re growing really fast and people have minimal roofing experience, they don’t know what they’re doing,” Nitzkin says. “In a drought you can get away with it, but when it starts to rain we see leaks.”

Another common problem Nitzkin sees is solar panels being installed on roofs that are near the end of their lifetime. Homeowners then have to pay $3,000 to $5,000 to have the solar panels removed so the roof can be replaced.

Source: “Solar Installs Leading to ‘Screwed Up’ Roofs,” Replacement Contractor (July 5, 2017)

Common Home Buyer Slip-Ups

Common Home Buyer Slip-Ups

Real estate professionals see a lot of dumb reasons why home buyers ultimately end up losing out on a deal. Practitioners recently shared some of the more common mistakes with realtor.com®, including ways to correct the situation:

1. Shopping outside their price range.

“It sounds obvious, but some home buyers just have trouble sticking to a budget,” says Benny Kang, a real estate professional in Irvine, Calif. Shopping online may increase the temptation to bump up the price range. One way to avoid this situation is to encourage your buyers to get preapproved for a loan so they know what they can truly afford and stay within their limits.

2. Submitting lowball offers in a hot market.

“If you’re in a seller’s market, making a crazy lowball offer can piss off the seller,” says Kang. Buyers would be smart to offer full price when homes are priced well. Help buyers understand how a comparative market analysis can offer insight into pricing.

3. Making a big purchase while in escrow.

Buyers often don’t realize they will need to delay big purchases and opening new credit lines while in the process of buying a home. “Even buying a fridge can throw off your credit or debt-to-income ratio,” says Kathy Conway, a Philadelphia real estate professional. If a big purchase is made, the mortgage lender’s underwriter will need to re-evaluate the buyer’s finances and recheck her credit report before closing to ensure the buyer still qualifies for the mortgage, so be sure to warn buyers when they’re approaching this period.

4. Forgetting to budget closing costs.

Buyers don’t just need money for the down payment. There are a lot of extra fees at settlement, too. Buyers can receive an estimate from their mortgage lender of what the closing costs will be before even making an offer on a property. Make sure they review that information carefully. Closing costs can vary drastically but typically cost 2 to 7 percent of the home’s purchase price.

Source: “8 Dumb Reasons People Can’t Buy a Home,” realtor.com® (July 11, 2017)