Home Insurance Myths to Bust for Your Clients

Home Insurance Myths to Bust for Your Clients

Most mortgage lenders require borrowers to purchase home insurance, but many buyers may be confused about what their policy covers. Realtor.com® recently highlighted several common myths consumers believe when it comes to home insurance.

Myth number one: All of a home’s belongings are covered. “A homeowners insurance policy is not designed to cover everything,” says Jeanne Salvatore, chief communications officer at the Insurance Information Institute. “Each policy clearly sates what’s covered and what’s not.” Personal valuables, for example, aren’t typically covered by a basic policy. “If you have valuable art or fine jewelry inside your house, you might need a scheduled personal property policy to cover these items,” says Laurie Pellouchoud, vice president at Allstate.

Myth number two: Coverage should be based on the market value of a home. Fifty-two percent of buyers believe they should purchase insurance coverage based on their home’s market value, according to a survey by Insure.com. However, with most insurance policies, rates are based on the cost to rebuild the home, not the value of the property. “In most cases, you need less coverage than the market value of your house,” Salvatore says.

Myth number three: Flood coverage is included in most standard policies. Flood coverage typically is not included in standard insurance policies. Homeowners who live in an area that is prone to flooding likely will be required to purchase a separate policy to protect themselves. Separate flood insurance is available from the National Flood Insurance Program and some private insurers. Even homeowners who live outside a flood zone may be wise to consider buying the extra protection against floods, experts say.

Source: “6 Home Insurance Myths That’ll Cost You Big-Time,” realtor.com® (May 23, 2017)

What Owners Want in Kitchen Remodels

What Owners Want in Kitchen Remodels

Kitchen revamps tend to be one of the most popular home remodeling projects. About 10.2 million American households tackled a kitchen remodel or replacement work in 2015, according to a recent report from the National Kitchen & Bath Association. Homeowners tend to want new flooring, counter tops, cabinets, sinks, and faucets in their kitchen remodels.

Also, “more homeowners are incorporating smart technology using the Amazon Echo or Google Home to connect to their appliances for cost savings, energy efficiency, and convenience,” says Elle H-Millard, who specializes in kitchen and bathroom trends at the NKBA.

The majority of homeowners aren’t spending big bucks in their renovations. Forty-one percent of homeowners’ work in their kitchen remodels was devoted to replacement projects costing less than $1,500. Twenty-two percent of respondents say they had minor remodeling done, between $1,500 to $5,000; 18 percent of homeowners had major remodels completed that cost between $5,000 to $10,000; and 19 percent completely remodeled their kitchens, spending more than $10,000.

Nearly 80 percent of homeowners who underwent a complete kitchen renovation spent on new appliances, according to the NKBA. Refrigerators were the top appliance replaced, followed by range ovens and dishwashers.

As for counter tops, homeowners still largely prefer granite, followed by laminate at 23 percent and marble at 19 percent.

Homeowners still say they like wood flooring best too, but they weren’t as likely to splurge on real hardwood flooring for their kitchen renovations, according to the NKBA’s survey. Laminate flooring was the most popular material in the kitchen at 32 percent, with ceramic and stone tiles following closely at 31 percent; both are often designed to mimic wood. Actual wood, meanwhile, was chosen by 18 percent of survey respondents.

“Wood has that timeless feel,” says H-Millard. But “porcelain tile would be much more durable than wood, [and] laminate would be much more cost-effective.”

Sinks were another popular area of kitchen renovations. Stainless steel is the most popular option at 72 percent, but 9 percent of homeowners opt for enameled cast-iron sinks.

Source: “Remodeling Your Kitchen? The Most Popular Appliances, Finishes, and Flooring,”

Rampant Refis Ignited Housing Crisis

Rampant Refis Ignited Housing Crisis

Mortgage refinance activity may have been the true hidden culprit behind the housing crisis, according to a new report by the Urban Institute written by Laurie Goodman, codirector of UI’s Housing Finance Policy Center.

Mortgage refinances were more likely to default than mortgages taken out to purchase a home “mostly because many people were treating their homes as ATMs through cash-out refinances,” Goodman notes.

Eighty-four percent of government-sponsored enterprise refinances in 2006 and 2007 were cash-out refinances. These types of refinances at that time tended to have “sloppier underwriting” and thus tended to default more than purchase loans, Goodman notes.

The analysis notes that between 1999 and 2015, 4.48 percent of refis and 3.3 percent of purchase loans were more than 180 days delinquent. In 2007, the peak year, 15.78 percent of refis and 9.95 percent of purchase loans were more than 180 days delinquent.

“Conventional wisdom suggests that refis should be less risky than purchase loans and default less because the borrowers have a known history of payment,” Goodman says. “So these results are surprising, especially given the stronger credit characteristics of refis, such as lower loan-to-value and debt-to-income ratios.”

Many housing experts blamed government policies aimed at increasing first-time home buyers for spawning the housing crisis. But the new report shows that “although there is a lot of blame to go around for the poor quality of loans before the housing crisis, the data reaffirms that purchase borrowers were not the primary culprits,” Goodman writes.

Source: “Using Homes as ATMs, Not Homebuying Fervor, Was More to Blame for the Housing Crisis,” Urban Institute (May 11, 2017)

Will the Starter Home Return?

Will the Starter Home Return?

Home builders say they’re struggling to deliver on the demand of lower-priced entry-level homes that cater to the growing number of willing millennial buyers, arguing that more entry-level homes will hurt their bottom lines.

“Since the recovery has really been at the middle end of the market, home prices have gone up and land prices have followed,” Megan McGrath, managing director at MKM Partners, told CNBC. “So it is very, very hard to make a good profit at a lower price point these days.”

Few starter homes are available on the market today through existing homes too. During the Great Recession, investors purchased hundreds of thousands of foreclosed properties—low-priced starter homes—and converted them into rentals. They’ve been holding on to these properties, which has spawned an even bigger deficit for lower priced homes on the market.

“I don’t think anyone’s doing jumping jacks in terms of that lower end of the market, but I do think you’re also seeing … a little slowdown at the middle end, because that’s where the bulk of the recovery has been so far,” says McGrath.

The median price of a new home built in March was $315,000. The median price of an existing home was $236,400.

Builders are gradually introducing new lines at lower price points.

“People are doing more town homes in good locations, and they’re also stripping stuff out of the house to get the price cheaper,” says John Burns, CEO of John Burns Real Estate Consulting.

Some builders are introducing lower-cost lines of homes, but while they’re lower-cost, they aren’t considered starter homes, CNBC reports.

The cost of building a starter home isn’t lucrative enough for builders, industry insiders say.

“It’s always a tug of war in builders between order growth and gross margins,” McGrath says. “Those are the two things that investors pay the most attention to. That really tends to be what drives the stocks.”

Demand is clearly growing among young buyers, however. New-owner households are now outpacing renter households, according to the latest Census data.

Source: “Home builders Are Targeting Millennials — But it Will Hit Their Margins,” CNBC (May 16, 2017)

Home Prices Will Only Get Higher

Home Prices Will Only Get Higher

Home sales reached their highest pace in a decade in the first quarter of 2017 as property prices continue to escalate, according to the National Association of REALTORS®’ latest quarterly report.

The median price of an existing single-family home nationally was $232,100 in the first quarter, up 6.9 percent from the same time period a year ago. Home prices rose year over year in 85 percent of the 178 metro areas analyzed.

The continued inventory shortages prompted home-price appreciation to quicken its pace in the first quarter, says NAR chief economist Lawrence Yun.

“Prospective buyers poured into the market to start the year, and while the increased presence led to a boost in sales, new listings failed to keep up and hovered around record lows all quarter,” Yun says. “Those able to successfully buy most likely had to outbid others—especially for those in the starter-home market—which in turn quickened price growth to the fastest quarterly pace in almost two years.”

Thirty metros saw double-digit price increases in the first quarter, NAR’s report shows. “Several metro areas with the healthiest job gains in recent years continue to see a large upswing in buyer demand but lack the commensurate ramp in new-home construction,” Yun says. “This is why many of these areas—in particular several parts of the South and West—are seeing unhealthy price appreciation that far exceeds incomes.”

The Commerce Department also reported Tuesday that overall home construction fell from March to April, with housing starts declining 2.6 percent month-over-month. This could have a broader impact on the economy, Yun adds. “With housing starts declining in April, inventory shortages will continue for a longer period of time. The intensifying housing shortage will push up home prices and rents, and easily above wage growth and the broad consumer price inflation. This continued, slow pace of construction of new homes is a major bottleneck to a faster economic and housing recovery.”

Affordability weakened slightly nationwide in the first quarter, despite a rise in the national family median income to $71,201. Higher mortgage rates and home prices softened affordability compared to a year ago, NAR reports. To buy at the national median price, a buyer making a 5 percent down payment would need an income of $52,251; a buyer with a 10 percent down payment would need to earn $49,501; and a buyer with a 20 percent down payment would need to earn $44,001, according to NAR.

Total existing-home sales in the first quarter, including single-family homes and condos, rose 1.4 percent to a seasonally adjusted annual rate of 5.62 million. That is the highest since the first quarter of 2007, when it stood at 5.66 million sales.

“Last quarter’s robust pace of sales was especially impressive considering the affordability sting buyers experienced from higher prices and mortgage rates,” Yun says. “High demand is poised to continue heading into the summer as long as job gains continue. However, many metro areas need to see a significant rise in new and existing inventory to meet this demand and cool down price growth.”

At the end of the first quarter, 1.83 million existing homes were available for sale—6.6 percent below inventory levels of a year ago. The average supply during the first quarter was 3.7 months, NAR reports.

Source: National Association of REALTORS®