Housing Inventory Shortage Causing Problems

The National Association of Realtors’ (NAR) Pending Home Sales Index (PHSI) fell 0.4 percent to 104.8 in January, the third month-over-month decline in the last four months.

NAR chief economist Lawrence Yun attributed the drop in the PHSI to weak inventory of existing homes for sale.

If more sellers don’t start listing homes for sale soon, the real estate comeback could be in trouble due to a lack of homes to be sold to prospects looking to buy. A lack of inventory has led to bidding wars in many markets as foreclosures have waned and cheap financing has lured a host of new buyers into the market. The competitiveness has resulted in rising prices.

Yun expects the inventory shortage will be relieved by an uptick in construction of new single-family homes, though single-family home completions regularly exceed new home sales. Government reports indicate builders have shifted from construction of single-family homes to multifamily, suggesting reluctance among younger, first-time homebuyers who witnessed the impact of the housing meltdown.

The month-over-month trend in sales correlates inversely with the movement in the median price; that is, when the median price falls, sales improve, as happened four times in the last 12 months.

According to the latest existing home sales report—which tracks closings—there were 1.94 million homes for sale at the end of February, a 4.7-month supply. The number of homes for sale has averaged 2.19 million for the last 12 months, down from an average of 2.8 million in the previous 12 months.

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Buying A Home: Should You Take The Plunge?

Spring is typically the busiest time of the year for homebuying, and this year the housing market is already showing signs of a strong comeback. Even though home prices are starting to rise, affordability continues to improve. The National Association of Realtors (NAR) first-time homebuyer affordability index reached a record high of 127.7 in 2012 (the higher the number, the better). In 2006, at the real estate market’s peak, the index stood at 71.3.

Low mortgage rates and an improving economy are helping make buying a home more attractive today. Should you take the plunge? Consider the following:

Rent vs. Own

In many areas it is now cheaper to own a home than it is to rent. But much of that advantage still depends on the size of your down payment, the interest rate you’ll pay on a mortgage and the amount of time you plan to stay put. If you’re a renter, it may pay you to sit down with a professional to see if your situation makes it more affordable for you to buy versus continuing to pay your landlord’s mortgage.

Finding the Right Home

Even if it’s more affordable to own rather than rent, whether you can find the right home for you could be a big question to answer. The number of homes for sale has dwindled in recent years. Inventory (excluding new construction) is back to 2005 levels, according to the NAR, and it may be another year before supply improves, as homeowners hold out to sell at higher prices.

Getting the Best Mortgage

Rates on home loans are still attractive. Currently, the average rate for a 30-year fixed-rate mortgage is around 3.6 percent, compared with an average rate of 5.4 percent for the last ten years.

But to qualify you’ll need a sizable down payment (generally 10 percent to 20 percent of the home’s value), a solid FICO credit score (720 or higher) and plenty of documentation to prove your income, among other things.

If you don’t clear those hurdles, you may be a good candidate for an FHA loan, which is a mortgage backed by the Federal Housing Administration.

The rates for these loans are 3.45 percent and require a down payment of only 3.5 percent. Also, you don’t need sterling credit. You may be approved with a FICO score as low as 580, though many lenders want a minimum of 620 today.

The catch is, you may owe more in fees.

FHA borrowers who put down less than 20 percent have to pay mortgage insurance. Starting today, April 1, the premium for new loans of up to $625,500, rises by 10 percentage points (for bigger loans, the fee goes up by 0.05 percentage points).

And beginning June 3, most new borrowers will have to pay the premiums for the life of the loan. Previously, mortgage insurance was dropped once the loan balance fell to 78 percent of the home’s original value.

Conventional loans also require mortgage insurance for small down payments, but lenders may be willing to waive the charge once you’ve paid down a chunk of the loan.

To decide whether you should “take the plunge” into the waters of home ownership, talk to us today for a free, no-obligation consultation on your particular financial situation for homebuying.

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5 Hidden Dangers In Your Home And How To Foil Them

Here are what we consider to be the top five hidden home dangers, along with our solutions for staying safe.

DANGER #1: Carbon monoxide
You can’t see it, and you can’t smell it, but carbon monoxide (CO) is the leading cause of accidental poisoning in the U.S. It’s produced by improperly working appliances, fireplaces, and it can even seep into the house from a running car in the garage. (See our article recently on ventless fireplaces)

SOLUTION #1: Carbon monoxide alarms
The only way to detect carbon monoxide? With an alarm. These should be installed on every level of the home, including the basement, and outside each sleeping area. Check with your fire department to see what local and state laws require in terms of placement. And be sure to have your appliances checked regularly.

DANGER #2: Kitchen gadgets and equipment
Cooking equipment is, and has long been, the leading cause of home fires, according to the National Fire Protection Association. The most common sources: stovetops, ovens, rotisseries, microwaves, portable cooking units, and barbecue or hibachi grills.

SOLUTION #2: Fire extinguishers
Unattended cooking is the main reason behind home fires, so start by staying in the kitchen when you’re using the stovetop, checking food frequently when it’s in the oven, and keeping the range clear of anything that can catch fire. But even for those who consider themselves Top Chef contenders, we recommend keeping a fire extinguisher or extinguishing spray on hand to prevent a small kitchen fire from growing out of control.

DANGER #3: Foundation cracks
If you’re like many homeowners, you’re probably unfamiliar with radon: the second leading cause of lung cancer (behind smoking). This odorless, radioactive gas can move up from the soil and enter the home through cracks in the foundation. Even if you don’t have a basement, radon can still enter your home through cracks around service pipes and construction joints.

SOLUTION #3: Radon test kits
You can’t see or smell radon, but you can easily test for it with an at-home kit. Rest assured, though, even if you come up with an elevated result, radon is fixable: the EPA says some radon reduction systems can reduce radon levels by up to 99 percent.

DANGER #4: Rapid fires
It’s little known how fast home fires can spread. From the time a smoke alarm sounds, your family can have as little as two minutes to escape safely before the fire spreads throughout your home, according to the National Fire Protection Association.

SOLUTION #4: Home escape plan
Your ability to escape from a home fire depends on advance warning from a smoke alarm but, also, from advance planning with an escape plan. Shockingly, though, only 29 percent of families have ever practiced their fire escape plan. It is recommended that you practice your plan regularly—at least twice a year—so everyone knows what to do in the event of a fire. You might even consider holding a drill at night.

DANGER #5: Home theft
While not exactly a “hidden” danger, home theft is something that’s frequently overlooked. You might think it’ll never happen to you, but the reality is that a home is broken into every 14 seconds in the United States, according to the FBI.

SOLUTION #5: Residential safes
There are basic ways to deter burglars from getting inside your home: install solid core entry doors with sturdy deadbolt locks; properly light entries; install metal grates over basement windows; and trim bushes so there are fewer places to hide. But you’ll enjoy extra piece of mind by storing your most valuable possessions in a safe (consider one that’s both waterproof and fireproof to keep items safe from the elements too).