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Opinion: Planning to sell your house to fund your retirement? You need to know this

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Seniors looking to unload real estate face headwinds (By Paul Brandus for Marketwatch.com)

 It’s been written about the grim financial prospects that millions of older Americans face. Meager personal savings, debt, looming health care costs and more are pushing many to the brink.  At least you could always cash out of your house and move somewhere cheaper, right? Perhaps, but as a new study from Zillow, the real estate website warns, perhaps not.

The problems are threefold: Demographics, geography and finances.  Looking at the first problem, there are a lot more baby boomers (defined as those born between 1946 and 1964) than those in the next generation, the so-called Generation X crowd (generally defined as those born between 1965 and 1985). At their peak, boomers totaled around 76 million, but Gen Xers around 50 million—only two-thirds as many.

12th AvenueZillow says 34% of all owner-occupied homes in the U.S. are owned by people aged 60 or older. Millions of these homes will hit the market over the next two decades as senior boomers either die, move in with their children or to an assisted living facilities. The problem: There are too many homes to be absorbed by Gen Xers. This suggests that prices will have to fall.

Geography matters, too, and will impact some areas more—perhaps much more—than others.  

It’s no surprise that homes in Rust Belt cities will be under pressure as people, for one reason or another, try to sell. But Zillow also projects that cities which have been traditional destinations for seniors will face challenges too. At the very top of its list, are three markets in Florida: Tampa, Miami and Orlando, along with Tucson, Ariz.

“If the number of future retirees choosing to make these places home during their golden years fails to match generations past and local housing demand fades, these areas may end up with excess housing,” Zillow’s report says.

Again: that means prices will have to fall.

Don’t Gen Xers—and millennials after that—want to live in these places? Zillow’s study says no, pointing out that “thus far they would rather be in cities or suburbs in major metropolitan areas that offer strong Wi-Fi and plenty of shops and restaurants within walking distance—like the Frisco suburbs of Dallas or the Capitol Hill neighborhood of Seattle.”

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Photo by Esther Ann on Unsplash


There may be another issue as well. Anecdotally, just talking with friends who are nearing retirement age (I’m not too far away myself) suggests growing concern about coastal areas like Miami because of rising sea levels and the possibility of more frequent and intense hurricanes. That’s not the problem in desert destinations like Tucson, but heat is. Average temperatures are rising; it gets hotter earlier in the year, stays hotter later in the year and is scorching in between. They say it’s a dry heat. Who cares? My oven is a dry heat.

Climate change wasn’t a problem 20 years ago, but as it seeps into the conscience of younger buyers—and younger Americans are more concerned than their elders about this—it seems likely to have some sort of impact on where they choose to live.

Thus, sellers in the Rust Belt will have trouble finding buyers, and sellers in the Sunbelt may as well. Again, in both instances, prices will have to fall to attract buyers.

Then there is the undeniable problem of finances. While some baby boomers have the luxury of having some sort of pension, along with retirement savings, Gen Xers are highly unlikely to have the former and have done little about the latter. Current obligations, like caring for children or aging parents, student debt, along with the often high cost of housing in many urban areas, makes saving for a down payment on a home difficult. And boomers think they’ll be lining up to buy homes in Dayton or Miami?

These three factors—demography, geography and finances—all suggest that baby boomers, at least in certain markets, may face headwinds when the time comes to sell. Any boomer counting on the sale of a home to plug a hole in their finances may need to ratchet down their expectations.

WRITTEN BY PAUL BRANDUS FOR WWW.MARKETWATCH.COM

Here’s why buying a home during the holidays can save you big

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FROM BANKRATE.COM: While holiday shoppers are obsessing over finding the ultimate gift deals, tenacious house hunters who buy a home in December compared with other times of the year will save the most money, according to a new study.

In fact, buying a home on Dec. 26 can save you as much as $2,500 on the sales price, according to an analysis from ATTOM Data Solutions. Nationwide, December held seven of the top 10 days where buyers snagged the best price discounts on a home purchase, making it the best month to buy a home, ATTOM found.

“Right around Thanksgiving, in particular, is a great time to (put in an offer) given that Dec. 26, 29 and 21 are all in the top 10 of best times to buy,” says Daren Blomquist, senior vice president of communications with ATTOM. He notes that it can take about 30 days from the time an offer is submitted to close a home sale. “It’s the housing market’s version of a Black Friday sale.”

The study looked at more than 18 million single-family home and condo sales. To calculate the premium or discount paid on a given day, ATTOM compared the median sales price for home purchases closing on that day with the median automated valuation model, or AVM, price on the same homes at the time of sale. Here’s a look at the best days of the year to buy a home.

10 best days of the year to buy a home
RANK DATE MEDIAN SALES PRICE DISCOUNT
Source: ATTOM Data Solutions
1 Dec. 26  $185,500  $2,500
2 Dec. 7  $203,000  $2,000
3 Dec. 4  $190,000  $1,823
4 Dec. 29  $200,338  $1,320
5 Dec. 21  $201,777  $1,223
6 Dec. 1  $200,000  $1,000
7 Oct. 12  $205,000  $1,000
8 Nov. 9  $205,335  $666
9 Feb. 9  $174,500  $500
10 Dec. 8  $202,996  $149

The saying all real estate is local still applies when timing your home purchase. Buyers in warmer climates may not see as much of a price break during the holidays as those farther north where weather is more of a factor in keeping buyers on the sidelines, Blomquist says.

Negotiating a lower price isn’t the only good reason to buy a home during the holidays, real estate experts say. December is a month before the Federal Reserve’s interest rate hikes resume, says Leonard Steinberg, a real estate broker with Compass Real Estate in New York City. Mortgage rate spikes can add to your borrowing costs and put some homes out of reach.

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“While everyone else is out celebrating and shopping — reducing buyer volume — those who shop (for a home) will be met by sellers willing to make a deal,” he says.

Danielle Hale, chief economist with Realtor.com, says that sellers may be more flexible about negotiating the closing date and paying for a home warranty to give buyers more piece of mind. You might also have more luck submitting a smaller earnest money deposit — something that’s less likely to fly when sellers are fielding multiple offers during busier times of year, Hale says.

If you find a house that meets your must-haves — especially when inventory in many markets is so limited — don’t let the holidays deter you from making an offer.

WRITTEN BY DEBORAH KEARNS FOR BANKRATE.COM

 

 
 

DATA: How to Actually Afford to Buy a Home in the U.S.

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Home buying hurdles exist — but research, creativity and flexibility will help you clear them (From Zillow Blog).

Home buyers today face tough challenges — housing prices have soared, a dollar doesn’t go as far as it once did and rent is more expensive than the past. 
How are people today making such a large purchase despite these hurdles? With more flexibility and a bit of financing creativity, today’s buyers are finding ways to achieve homeownership.

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Photo by Erda Estremera on Unsplash 

 Know your options (and credit score)

The first step to knowing if you can afford a home is figuring out what financing options are available to you, including what mortgages you’re eligible for and how much you need (and can afford) to put down upfront.

Learning the minimum FICO score required by lenders and understanding your own credit score are important starting points.

Many home shoppers aren’t sure how much they have to put down on a home, what the lender-required minimum down payment will be (it’s not always 20%), or what programs are available to help with down payments, like FHA loans.

Before buyers even start thinking about saving for a home, they should know what their financial resources are and if they’re eligible to buy.

Make enough money to save

 With fewer resources to pull from than their older, wealthier counterparts, renters wanting to buy face tough financial headwinds.

According to the Zillow Group Consumer Housing Trends Report 2019, renter households typically earn a median income of $37,500 annually, which is nearly $40,000 less than the median household income netted by households who recently bought a home (of whom the median household income is $75,000 annually).

While there are ways to enter into homeownership without making $75,000 in household income, it’s hard to afford to buy if you make significantly less. “If you’re making $37,500 per year, it’s probably not feasible for you to buy in almost any market,” says Zillow Chief Economist Dr. Svenja Gudell.

While households purchasing homes are more likely to have two incomes than renter households (and thus a higher median household income combined), even two-income households struggle to afford to buy in competitive markets.

Save enough cash (but not as much as you think)

 One of the most daunting parts of home buying? The down payment. In fact, two-thirds of renters cite saving for a down payment as the biggest hurdle to buying a home, according to the Zillow Housing Aspirations Report.

For people buying the national median home valued at $229,000, with the traditional 20% down payment, that’s $45,800 upfront — just to move in.

“The down payment remains a hurdle for a lot of people,” says Gudell. “But they should know they don’t have to put 20% down.”

man and woman standing in front of gas range
Photo by Soroush Karimi on Unsplash

Although putting down less than 20% means additional considerations, such as the cost for private mortgage insurance (PMI), some find it worth the hassle. In fact, according to the Zillow Group Consumer Housing Trends Report 2019, only one-fifth of recent buyers (20%) put 20% down, and just over half of buyers (56%) put less than the traditional 20% down.

Buyers are also getting creative about piecing together a down payment from multiple sources. According to the report findings, 34% of buyers who get a mortgage also get help in the form of gifts or loans from friends and family to come up with a down payment. 

Know your deal breakers, but be flexible

coregroupsign111 (2)To get into a home — even if it’s not the home of their dreams — some of today’s buyers are considering homes and locations outside of their initial wish list and getting increasingly flexible when it comes to neighborhood, house condition and even home type.

“I do think people get discouraged when they look in their target neighborhood and they see homes around $170,000 when they’re looking for a $110,000 home,” Gudell says.

Affordably priced homes do, in fact, exist. But in popular areas, where people most often want to live, it’s going to be harder to find that cheaper home, Gudell says.

“If you’re willing to take a longer commute and make a couple trade-offs, you might be able to find a home that is farther out that might be cheaper,” Gudell explains. “You have to leave the paved path before you can find cheaper choices.”

WRITTEN BY BRITTAN JENKINS FOR WWW.ZILLOW.COM/BLOG

NEW DECADE, NEW BUYERS: A flood of first-time homebuyers to hit the market, according to research

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New Decade Means New Homebuyers. (From HOUSINGWIRE.com)

A flood of first-time homebuyers is about to hit the market over the next three years, according to newly released analysis from TransUnion. TransUnion is currently projecting that at least 8.3 million first-time homebuyers will enter the mortgage market between 2020 and 2022.

That figure is more than any three-year period in the last decade, according to TransUnion’s report.  

On top of that, if economic growth exceeds expectations, the number of looming first-time homebuyers in the next three years could reach as high as 9.2 million.

“While we’ve recently seen a boom in refi activity, actual homeownership rates are down. Challenges have included high home prices, sluggish wage growth and limited housing inventory,” said Joe Mellman, senior vice president and mortgage business leader at TransUnion.

“But we may be starting to see daylight as slowing home price appreciation, low unemployment, increased wage growth and low interest rates are helping affordability,” Mellman added. “As a result, we are optimistic that first-time homebuyers will contribute more to home ownership than at any time since the start of the Great Recession.”

Another TransUnion report from earlier this year painted a similarly flattering picture of the housing market.

That report showed that the number of Gen Z consumers, categorized as those born in 1995 and after, who took out a mortgage more than doubled in the last year.

That report also showed that the number of Gen Z consumers who were credit eligible (meaning they were 18 years or older) increased by 4.5 million in the last year, climbing to 31.5 million in the second quarter 2019.

Additionally, the report showed that over the next three years, another 13 million Gen Z consumers are expected to become credit eligible.

To get more insight into prospective first-time homebuyers’ mindsets, TransUnion surveyed 943 U.S. residents who have never owned a home and expressed interest in buying one in the next three years.

Of the 943 surveyed, 45% said they were seeking more privacy when buying a home, and 44% said building equity/wealth was important when seeking out a home.

white concrete building

Getting married was why 24% said they wanted to purchase a home, while 23% said expanding their family is why they are buying.

“Only 10% of respondents said being tied down to one location would be a reason to delay home purchase. Just like others before them, the younger generation seem to place value in home ownership,” Mellman continued.

But, there are some who aren’t buying at all, just yet.

Delaying home purchase due to not having enough money for a down payment is why 58% said they are delaying their homebuying, and 51% said they said they thought they would need between 10 and 20% for a downpayment, which is why they are delaying buying a home.

“There has been a lot of discussion in the marketplace that younger people today may not be as interested as prior generations in buying a home and being tied down to one location. Our survey results suggest that is not the case at all,” Mellman said. “Rather, younger people may have in fact been deterred from home purchase by challenges they faced in the financially difficult times of the last decade.”

WRITTEN BY JULIA FALCON FOR HOUSINGWIRE.COM

 

3 Reasons to Invest in Real Estate, According to a Financial Planner Who Owns 10 Rental Properties

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FROM BUSINESS INSIDER: Making money in Real Estate isn’t for everyone. It takes grit, time, and most importantly, cash. 
According to Brent Sutherland, a certified financial planner, real-estate investing is a decidedly “non-traditional” method for building wealth, but a powerful one nonetheless, he wrote in an article published on CoachCarson.com.

When he was 35, Sutherland bought his first single-family home to rent out for income. Now, less than five years later, he owns eight additional properties, plus part of a commercial real-estate project that involves four apartments, a garage, and 10 mobile homes.

After becoming a real-estate investor himself, Sutherland left traditional financial advising to coach clients on his own.  The reason why, he says, is that the way advisers are paid, trained, and regulated generally inhibits them from recommending a non-licensed product like physical real estate to clients. Here’s why Sutherland believes real-estate investing is a valuable tool for building wealth:

1. Real estate diversifies your income

It’s a common habit among financially successful people to develop and maintain multiple income streams.

“While it is certainly important to be properly diversified with your investments, it is even more important to be diversified with your income,” Sutherland writes. “This is because the largest financial risk for most of you is the loss of your primary source of income, which is typically in the form of a day job.”
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Setting up and managing a rental property can open up a stream of steady income that doesn’t require the time commitment of a full-time job.

“If you continue to expand your income streams, you eventually reach a point where you no longer need to rely on a day job (and someone else being in charge of your well-being). This is the point of financial freedom; the ultimate form of financial security!” Sutherland writes.

2. Real estate produces near-immediate results

When managed correctly, rental properties can produce income quickly and consistently, he says.

“You can achieve and feel the results almost immediately. Property improvements are visible and tangible. You can cash, spend, and invest rent payments. Today! Not 30 years in the future,” Sutherland writes.

“I’ve found that investing with near-immediate results usually generates energy and enthusiasm in a person that cannot be achieved through traditional means. Positive financial behaviors unearth themselves,” he writes.

3. Passive income can help you become financially independent sooner

According to experts, a person is considered financially independent when they have 25 times their annual expenses saved. With this amount, they would be able to withdraw 4% of their investments each year and live comfortably without ever running out of money, assuming they earn the average return.

With passive income from real-estate investments, Sutherland says you can halve the amount you need invested to become financially independent.

He explains: “If you need $40,000 a year to live, you could alternatively invest in assets that generate an 8% cash-on-cash return. This is a very reasonable assumption. And it means you would only need to save a total of $500,000 (instead of $1 million). Yet, your investments would still meet your annual household living needs.”

While returns, taxes, and inflation can, of course, affect your timeline, he says, cash-flowing real-estate is a clear asset.

Written by Tanza Loudenback For Business Insider


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