Five reasons to buy a home this year

Affordability returns to housing, and buyers have loads of negotiating power
 MarketWatch

CHICAGO (MarketWatch) — People are afraid to buy a home in times like these, with the economy tanking and home prices continuing to fall. But if you’re brave enough to stray from the herd, you might be in for the home-buying opportunity of a lifetime. Ask for price reductions, improvements, closing costs — whatever — and the seller, desperately trying to get a contract, is very likely to work with you, said Jay Papasan, one of the authors of the book “Your First Home.” When the market starts improving, your negotiating power starts to diminish, he added. “People can get a lot of what they need and almost all of what they want today,” Papasan said. “Once a few people get off the fence, there’s safety in numbers and you lose your leverage.” If you’re qualified to buy a home now, the purchase makes sense for your situation and you’re prepared to live in that home for at least five years, there are five reasons why you may be headed for a great deal: 1. Affordability is better than everAccording to the National Association of Realtors’ housing affordability index, homes were more affordable in December than at any other point since the group started the index in 1970. The affordability index is a measure of the relationship between home prices, mortgage interest rates and family income. John and Julie Chilman, for example, recently have been able to stretch their dollars in the Las Vegas area. The listing price for the five-bedroom home they’re buying was $265,000; they offered $250,000. “Our Realtor was like ‘Yeah, pipe dream. Like they’re going to take that,’” John Chilman said. “And all they did was counter $255,000… and they’re paying all closing costs.” The home had lingered on the market, and was listed for $310,000 just six months ago, he said. In Las Vegas, prices have fallen 50.7% from their peak and are now where they were in the second quarter of 2002, according to data from Clear Capital, a real estate valuation and data provider for banks and investment firms. Housing prices are down and mortgage rates remain low, but home buyers should be aware that they’re in it for the long haul. MarketWatch’s Amy Hoak reports. (Feb. 5)  A report from Moody’s Economy.com, released this week, predicted that house prices will stabilize by the end of this year, even though the Case-Shiller house price index will fall another 11% from the fourth quarter of 2008. By the end of the real-estate downturn, prices will have fallen by double digits, from peak to trough, in almost 62% of the nation’s 381 metro areas, according to the report. In 10% of the areas, declines will be more than 30%. Not all markets have experienced huge drops, however, so it’s wise to take a look at how far prices have fallen in your area. The Office of Federal Housing Enterprise Oversight’s Web site has a house price calculator that can help. 2. You have a large inventory to choose fromIn many places it is taking months to sell a home, creating loads of inventory — from new homes to existing homes to foreclosures. There was a 12.9-month supply of inventory in December given that month’s sales pace, according to NAR. A large selection gives buyers more choices and drives down prices. And home sellers have gotten the picture. It’s fair to say that home sellers have become “increasingly desperate,” Papasan said. “People who have had for-sale signs in the yard for six months are starting to become in tune with the reality of the situation,” he said. Buyers can take advantage. But if you put off a purchase until inventory shrinks substantially, you might not get as good a price, said Eddie Fadel, author of the book “Don’t Rent, Buy!” And be forewarned: It’s nearly impossible to time the exact bottom of the housing market and even if you do there’s no guarantee you’ll make a killing. “You buy for quality of life.  Don’t buy on speculation,” said Duane Andrews, CEO of Clear Capital. “I wouldn’t buy a home expecting the housing market to rebound quickly in the next 10 years,” he said, adding that he expects moderate gains in values when the turnaround does happen. Historically, real estate appreciates about 5% a year over the long term, said Nancy Flint-Budde, a Salem, N.Y.-based certified financial planner. But as the country crawls out of a recession, many markets probably won’t see huge home-price gains any time soon. 3. Builders are offering big discountsHome builders are getting even more aggressive with their pricing. In fact, Fadel recommends looking at completed new homes first because builders are offering such steep discounts. Plus, you’d have a warranty not only on the home itself, but also on the home’s appliances, he said. “[Builders] want to save their credit, save their brand, save their reputation and clear out inventory,” he said. “They can go buy cheap land today with that cash.” His advice: Walk in with a preapproval for a mortgage, make an offer, then walk away without making a deal if you have to. Chances are, a builder will call back and reconsider that offer rather than let a potential buyer get away. 4. Mortgage rates are historically lowIt’s not just the price of the home that will affect affordability; mortgage terms will also affect your monthly payments. These days, rates are very attractive for conforming loans, those that can be purchased by mortgage agencies Fannie Mae and Freddie Mac. (The current limit is $417,000, although that can rise as high as $625,500 in high-cost markets.) Earlier this year, rates on the popular 30-year fixed-rate mortgage hit a level not seen in decades, and rates have stayed relatively near that low for weeks. This week, the 30-year fixed-rate mortgage averaged 5.25%, according to Freddie Mac’s weekly mortgage survey. More mortgage help could also be on the way. Last week, President Obama said that his new economic plan, which Treasury Secretary Timothy Geithner is set to unveil Monday, would help lower the cost of mortgages for home buyers, although he did not give specifics. But low rates don’t mean lenders are handing out mortgages easily. You’ll need good credit, a substantial down payment and a willingness to document your income in order to qualify for those great rates, if you can qualify at all. 5. You can get a federal tax creditThere’s currently a federal credit of up to $7,500 for home buyers who haven’t owned a home in at least three years. The credit needs to be paid back, although the repayment feature is removed in the economic stimulus plan that passed in the House of Representatives. That extra cash will come in handy: The average first-time home buyer spends about $6,000 in the first six months of owning a home, said Flint-Budde. The National Home Builders Association is pushing for more help for home buyers, including an even bigger tax credit — the Senate in its version of the economic stimulus bill is proposing a $15,000 credit. And both NAHB and the National Association of Realtors want the incentive to help all buyers, not only those who are becoming homeowners for the first time. Waiting for further federal developments, however, might sap a buyer’s negotiating power, as more people get back into the market and competition returns, Fadel said.  ”The more Washington gives, demand will increase,” he said. Amy Hoak is a MarketWatch reporter based in Chicago

Kitchens and Bath Design Trends

In the most important rooms of the house, designs that incorporate the latest trends will surely grab buyers’ attention.

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The two rooms that consistently make the biggest impression on buyers are—without a doubt—kitchens and bathrooms. Even in today’s uncertain economic times, home owners and buyers are willing to spend on upgrades to these two essential rooms. Their goal: Create that polished high-end look they’ve seen in magazines and on TV.

“We’re seeing more of a ’save and splurge’ mentality in kitchen and bath remodels,” says Linda Eggerss, editor of Kitchen and Bath Ideas magazine. “Home owners may give up the granite countertops to get the island, or vice versa, but they still want a certain look.”

The growing importance of the kitchen as a living space, not just as a cooking and eating space, has added to a desire for quality, she adds.

We spoke with Eggerss and a host of other industry experts, designers, manufacturers, and stagers to give you a preview of what’s hot today and what will be hot tomorrow.

With this knowledge, you can help sellers spruce up their kitchens and bathrooms to increase the likelihood of a sale. On the buy side, knowing the new styles and how to incorporate them into a dated room will open buyers’ eyes to the possibilities.

Light and Bright

In good housing markets and bad, a cheerful kitchen will get buyers past a multitude of other issues, which may explain why white is still the kitchen color of choice for many, according to Eggerss. “It’s a classic and always looks good,” she says.

In California’s wine country, designer Jan Kepler, principal of Kepler Design Group in San Luis Obispo, Calif., also favors white. “Beach houses along the central coasts are often done in fresh white Shaker style cabinets and white soapstone or marble countertops. On the other side of the foothills, in wine country, home owners tend to prefer a more rustic look with soft glazed creamy whites, cherry and recycled copper accents, and antiqued granite countertops,” she says.

For accents, many designers prefer strong saturated colors as well as warm grays. A little bit of shimmer also is a good thing. Coppery metallics and glass tiles in a rainbow of hues are a perfect way to add “that pop of color” in a kitchen, says Kathleen Garvey of Enhanced Interiors & Home Staging in Fort Myers, Fla.

Interestingly, one place that bright colors are popular is the laundry room, say Marc Hottenroth, industrial design leader for GE Appliances in Louisville, Ky. “Maybe it’s because the laundry is a work area where people need a lift, or maybe it’s because you can shut the door and not see the color all the time,” he says.

Lighting—natural and manmade—”is huge” in kitchens and even more essential in bathrooms, says Christina Trauthwein, editor in chief of K+BB Magazine. Baths, she says, are notorious for bad lighting. Ideally, bathroom lighting should come from both above and the side to prevent shadows.

In kitchens and baths, manufacturers and designers are incorporating energy-efficient LED lighting under countertops, around glass doors, and in cabinet shelving for illumination and ambiance, especially at night, says Duval Acker of Kitchen by Design in Mt. Pleasant, S.C. Another easy and dramatic way to add extra illumination: Place inexpensive fixtures above cabinets that don’t reach all the way to the ceiling, suggests Barry Tuttle, manager of Absolute Kitchen and Bath in Surry, Maine.

In showers and baths, chromotherapy lighting lets bathers use different colors of light to set the mood or enhance their energy, says Trauthwein.

Easy Lighting Upgrade

Add dimmers to all lighting so that you can adjust the light to the job and the mood.

Storage Galore

Let’s face it, no matter how big the kitchen and bath get, there’s always a need for more storage space.

In the kitchen, a walk-in pantry is the amenity buyers drool over. If a home owner can steal a little space from a neighboring laundry room or eating area, a big pantry is a sure way to wow buyers, says Julie Loehner, president of Kitchens by Julie in Cary, Ill.

Kitchen islands are also turning into storage centers as they grow in size and take on more irregular shapes. Built-in wine racks, undercounter refrigerator drawers, and appliance storage all add to the island’s versatility, says Loehner.

In bathrooms, it’s all about built-ins and decluttering, a technique any good home stager will tell you increases buyer appeal. Electrical outlets inside drawers keep electric shavers out of sight, and wall-mounted faucets with single-lever controls take up less visual space, says Lynn Schrage, marketing manager of the Kohler Store in Chicago.

And if you thought refrigerators were just for the kitchen, think again. Refrigerated drawers and cabinets in the bathroom can store cosmetics, medicines, and even some orange juice for a quick morning treat. Warming drawers are equally as popular, keeping towels toasty without the bulk of a heated towel rack, says Trauthwein.

Just as kitchens are becoming more of a living space, bathrooms are expanding their role. Some bathrooms are now accommodating exercise equipment, reading nooks, ventless fireplaces, and multiple TVs, says Lenora Campos, manager of public relations for fixture manufacturer Toto USA.

Easy STORAGE Upgrade

Add roll-out shelves in kitchen cabinets and drawers in bath vanities for easy access and better organization.

Earth-Friendly Features

Perhaps the hottest trend in kitchens and baths is the move toward sustainable products. But while more people are asking designers about going green, they’re “willing to stick their necks, and their pocketbooks, out only so far,” says Garvey, the 2008 grand prize winner of the Real Estate Staging Association’s national competition.

As prices drop on green products, it’s certain that green elements will become more widespread, says Trauthwein. This is especially true of sustainable woods used for flooring and countertops. Fast-growing bamboo is the eco-material of choice for cabinets and floors, but those who favor a more traditional look have started to explore eucalyptus.

“Eucalyptus trees can be harvested in 10 years,” says Tuttle. “The wood is very dense—like teak—and will take a darker stain.” He’s used “lyptus” wood for kitchen islands and custom hutches in baths.

“Most of my clients aren’t green purists, but they’re excited about adding green features like sustainable woods and recycled copper to their kitchens,” says Kepler.

Water-saving features are a prime way that kitchens and baths are going greener, says Acker, who believes that many more home owners today will opt for green products as long as they’re well-designed. Campos notes that plumbing fixture manufacturers are now exploring options that let consumers preset and easily alter the water volume and temperature in a shower to suit the task at hand—more water for washing hair, for example.

Another environmentally friendly option that saves trees and aids aging in place is a toilet seat that uses water and air jets for hands-free personal clean up. Deluxe models of products such as the Toto Washlet also feature heated seats, sensor-activated lids, and massage options.

Easy ECO-Upgrade

Change out a faucet to one with a built-in sensor; it saves water, and little ones never have to remember to turn it off.

Custom is King

“People still want to invest in their homes, and we’re seeing anything standard and common—from oak cabinets to side-by-side vanity bowls—start to recede in popularity,” says Phyllis Markussen, chair of the Department of Family Studies and Interior Design at the University of Nebraska in Kearney. Even for mid-range homes, adding a few luxury touches to a kitchen or bath is common, says Tuttle.

Islands, in particular, are getting the feel of fine furniture with columns, toe boards, and moldings. Using different surfaces and finishes on counters or in the wall cabinets and the island are other affordable ways to create a custom feel in the kitchen. “As kitchens become larger and more integrated into the living space, people don’t want a monolithic feel,” says Trauthwein.

Some of the same high-quality furniture elements—often in the form of custom hutches—can add a custom feel to a bath. “People often chose these additions as a way to personalize a room, but having one special item in a kitchen or bath also attracts new buyers,” says Tuttle.

Panels that blend refrigerators and dishwashers into cabinetry are another way to create a sense of quality. You can also get the look and feel of customization by building out the cabinetry around the refrigerators so that it doesn’t stick out into the room, suggests Eggerss.

Easy CUSTOMIZING Upgrade

Add stylish pendant or chandelier lighting over an island or eat-in kitchen area.

Trends with Staying Power

Although it’s helpful to know the latest trends, remember that design choices in kitchens and baths depend on both personal taste and how long home owners intend to stay in a home, says Garvey. Those who plan to sell in five years or less, should focus on personalized touches using paint, backsplashes, and accessories, she advises.

Still, many of today’s trends will almost certainly persist among the next generation of home buyers, says Yaprak Savut, an assistant professor of interior design program at East Carolina University, in Greenville, N.C.

The university conducted a survey of working adults between 18 and 31 years old and found that most are willing to pay as much as 20 percent more for appliances that can be customized with features like removable fronts and trivection ovens that simultaneously use thermal heat, convection, and microwave cooking. 

Most young adults also said they wanted natural woods and stone in their kitchens, and 76 percent said they’re at least somewhat interested in having a greener kitchen. And since they prefer to cook for themselves and entertain at home, they want kitchens to be even bigger. For your sellers, it may be time to knock out that wall.

4 Rehab Must-Dos

• Universal bath design.  Roll-in showers and decorative grab bars that match other bath fixtures.
• A kitchen island.  Ideally one that’s not a boring square and that incorporates lots of storage.
• A sealed shower.  Multiple shower heads and outside vent to cut down on mold build up on grout and behind walls.
• Stainless steel appliances. Essential today at almost every home price point.

5 Retrofits Buyers Love

• Tile a backsplash. Use a bright color or a bronzelike metallic.
• Add undercounter lighting. Improve safety and ambience.
• Paint the upper kitchen cabinets. Choose a different color for a custom look.
• Add doors with glass panels to some cabinets. or create open shelves to display a few lovely dishes.
• Change the hardware. For a fresh look, install new knobs and pulls, or reface the cabinet doors.

5 Kitchen and Bath Features Buyers Want Most

• 36% Separate shower enclosure in master bath
• 31% Eat-in kitchen
• 24% High-end appliances
• 23% Granite countertops
• 21% Kitchen island
  Source: NAR 2007 Profile of Buyers’ Home Feature Preferences

REALTOR® magazine’s House & Home feature this month is brought to you by Lowe’s, a REALTOR Benefits® partner with a 60-year heritage in the home improvement industry. With more than 1,625 stores nationwide, Lowe’s carries the world’s leading brands, including more than 40,000 in-stock products and hundreds of thousands of products available by special order.

5 Tips for Homebuyers Seeking a Mortgage
Here’s a warning for potential borrowers: Nervous lenders have tough new rules and are paperwork crazy.

“Borrowers are going to have to prove they are the borrower they say they are,” says Keith Gumbinger, vice president of HSH Associates, a mortgage-industry publisher in Pompton Plains, N.J.

Gumbinger says homebuyers should consider these things before they apply for a loan.

1. Down payments are critical. Borrowers should expect to put down at least 10 percent for a “conforming loan” – a mortgage that Fannie Mae and Freddie Mac will purchase.

2. Credit scores count. A 720 on the 850-point FICO rating scale will get a borrower access to the best rates. Rich Bira, branch manager of FCM Direct Lender in Chicago, says: “A score between 720 and 739 gets 0.125 percent added to the rate, a score between 700 and 719 gets 0.375 percent added to the rate, and a score between 680 and 699 gets 0.5 percent added to the rate.”

3. Consider VA and FHA. Borrowers without down payments or with less than stellar credit scores should consider these government-insured loans offered through the Federal Housing Administration of the Veterans Administration.

4. Unearth the records. Before applying, borrowers should organize tax, banking and other records that prove income, savings and debts. They should also expect to be patient about what may seem to be endless requests for information.

5. Get rid of debts. Limiting debts, including what borrowers expect to pay for the mortgage, to less than 43 percent of gross income is important.

Source: Chicago Tribune, Mary Umberger (02/15/09)

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