Author Archives: Karen

The Long Term Benefits to Buying a Home at a Younger Age…

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This is a good read and I wanted to share:

Buy young, earn more: Buying a house before age 35 gives homeowners more bang for their buck

Today’s young adults are less likely to own a home compared with baby boomers and Gen Xers at the same age. Our recent work has investigated why millennials have lower homeownership rates than prior generations, but the long-term consequences of homeownership delays are not well understood.

Our analysis starts the conversation about these consequences. We find that delaying homeownership may reduce the wealth that millennials generate over their lifetime.

Most of today’s older homeowners bought their first homes before age 35

Using the Panel Study of Income Dynamics (PSID), a dataset that has followed US individuals since 1968, we tracked people who reached age 60 between 2003 and 2015. The PSID switched to a biannual survey in 1997, so we used information at age 61 for those who were not surveyed at age 60.

Today’s older adults became homeowners at a younger age than today’s young adults. Half the older adults in our sample (bought their first house when they were between 25 and 34 years old, and 27 percent bought their first home before age 25 (figure 1). But only 37 percent of household heads ages 25 to 34 and 13 percent of those ages 18 to 24 owned a home in 2016.

figure 1

Those who bought earlier got the biggest bang for their housing buck

The impact of these earlier purchases is significant. Those who bought their first home between ages 25 and 34 have the greatest housing wealth by their sixties. At age 60 or 61, their median home equity (in 2015 inflation-adjusted dollars) is close to $150,000 (figure 2).

Those who bought their houses later have significantly lower housing wealth. Ten years of appreciation alone can make a big difference. There is a $72,000 difference in the median housing wealth of those who bought their first home between ages 25 and 34 and those who waited until they were 35 to 44. If they wait until they are 45 or older, the median wealth is more than $100,000 lower.

And while those who bought their houses before age 25 have a median home equity of $130,000, it’s important to understand why those who bought the earliest don’t end up with the most median home equity (table 1).

The youngest buyers have lower incomes, are less educated, and buy lower-priced homes. The median first-home value for these buyers is less than $70,000, while the median first-home value is around $125,000 for the other three groups.

But even though these younger homeowners ended up with less median equity, they have the largest return on their housing investment. The ratio between the median home equity at age 60 or 61 and median price of the first home decreases with the first age of homebuying: the ratio is highest for those who bought their first home before age 25 (1.93) and the lowest for those who bought their first homes after age 44 (0.36).

The bottom line is, those who bought houses before age 25 got the biggest bang for their housing buck.

figure 2

table 1

Those who bought earlier live in more expensive houses and have less mortgage debt in their sixties

For those who bought their first homes when they were younger, greater home equity came from home price appreciation and paying down their mortgage debt. Those who bought their first home between ages 25 to 34 live in more expensive houses in their sixties than those who bought earlier or later. Their median house value at age 60 or 61 is $240,000.

Those who bought before 25 have lower median house value when they are older (as would be expected from their lower educational attainment) but have lower mortgage debt because they have owned their home longer. Their median remaining principal is less than $11,000, considerably lower than the other three groups.

Our analysis shows that those who bought their first home earlier are financially better off in their sixties. This suggests that deferring home purchases could have long-term economic consequences for millennials and the nation’s economic well-being.

As people age into retirement, they rely more heavily on their wealth rather than their income to support their lifestyles. Today’s young adults are failing to build housing wealth, the largest single source of wealth, at the same rate as previous generations.

While people make the choice to own or rent that suits them at a given point, maybe more young adults should take into account the long-term consequences of renting when homeownership is an option.

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Market Update

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I thought I would share my thoughts on the current market conditions in order to help people evaluate their situation when it comes to buying and/or selling a home.

I first noticed the market slowing down to where it wasn’t a true frenzy around May. The market was still very strong and there were still multiple offers, but it wasn’t the absolute insanity that it had been in the months prior to May.

And, as time went on, I could see a continual slow down, still strong, but less and less multiple offers, offers not going as significantly over list price, and those types of changes. Also, during the summer there was more inventory to choose from and interest rates creeping up a bit. I was able to sneak buyers into homes that had been very frustrated with all of the competition of months past, who some felt like giving up on buying, but then had flicker of hope and the drive to keep going and were able to lock in a home.

In the last 2-3 months, I have seen homes actually sitting on the market and not selling at the prices that comparable homes had sold in the months prior. Some homes even selling way below the last comparable homes, like $100k+ less, some even hundreds of thousands less than the comparable homes from the peak of the 2018 market. And, I see many, many price reductions for homes. Some homes even having multiple price reductions.

My thoughts are that since the end of 2017 to early 2018, the market went really crazy, it can’t sustain those types of price jumps forever, so over time, it calmed down, and now we are more in a correction phase for 2018, at least. Prices really peaked, but it got to a point where buyers started to call it quits for paying any more for a home. Buyers just can’t continue the cycle of bidding up homes sale after sale after sale for indefinite periods of time. It has to end, slow down, and/or make a correction at some point.

A lot of people ask about my opinion for the current market conditions. I am not a fortune teller, but historically and statistically, this is a fairly normal yearly cycle. Sometimes it doesn’t go exactly as the prior year, of course. But, overall, typically 1st quarter is when there is a market frenzy, often the market does calm down around summer, as the end of the year approaches and inventory goes down again due to holidays and such, it can be a time where buyers have an opportunity to get into a home while the market is calmer and before it heats up the following year.

So, if history repeats itself and we do have the normal cycle, now may be a good time to buy. The market is calmer, homes are staying on the market longer, there are a lot of price reductions and motivated sellers, interest rates are still good, there is more likelihood that sellers will negotiate on price or maybe even do some repairs, there is more likelihood for FHA/VA buyers and also low down buyers to have a chance to lock in a home before competition starts up again. Right now, I would encourage those buyers that are FHA or have a low down payment, who do have trouble competing with other buyers in a fierce market, now may be the time to lock in a home before it gets unachievable again. It also may be a good time for those that already are homeowners to make the move to another home. It may be more likely that a seller will be willing to take a contingent offer, if the seller has no other offers to consider.

It’s better to buy when no one else is buying and sell when no one else is selling, even if that’s not the popular way to do things. Those times are when buyers get better deals and sellers get top dollar, when they go against the grain of what everyone else is doing. I know people sometimes try to predict the market and try to either figure out the bottom or the peak…and that is typically a very hard thing to do, and often they end up missing what they are trying to achieve. And, if this is a normal yearly cycle, that means early 2019 will be a frenzy again and prices may likely increase from the prices they are today.

 

Market Update

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Just Sold in San Jose for $1,150,000

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For this home I sold in San Jose for $1,150,000, I was the agent for the buyer, who was referred to me by someone who told me that they have been on this here database for 10 years and has read these stories I write over the years and thought I would be a good match for his colleague! How cool is that?! I guess telling these stories really does work…lol. 🙂

I have been working with the buyer since March and it’s been a real challenge to find the right home at the right price. So often, when he would find a home he liked and wanted to make an offer, the home would have a lot of competition and would be selling for a higher price than he was willing to pay. So, when we would find out that the home would be selling for a higher price than he would pay, we would just move on. And, there were a few cases in which we would get the disclosure package and there would be a lot of work that was unexpected, so again, we would move on.

As many know, the market has slowed down quite a bit since March, which was a good sign for the buyer, and we hoped that it would slow down enough to where the next time there was a home he wanted to buy, we would have the opportunity to lock it in at a price he was willing to pay. And, that day finally came…

For this home, the moon and stars were definitely in line to make this happen. Firstly, the listing agent was out of the area and did NOT list the home on the prodominate MLS that we use here in Santa Clara County. Both the buyer and I would look daily, he would look at consumer sites and found this home. I found it on MLS, but not the Santa Clara County MLS, so even at that moment, I knew there may be an opportunity here, in which the bulk of local agents would not even see this home come up for sale.

Secondly, this was a very unique situation in that the sellers were in a REAL hurry to sell the home because they were moving to So Cal and already have a job lined up that was starting. So, they needed to be down there ASAP. And, they listed the home on the Labor Day holiday weekend, and had an open house both Saturday and Sunday, but then wanted to review offers ASAP. So, that was lucky, in that the buyer was around over the holiday weekend, and it was only listed basically over the weekend and reviewing offers ASAP.

Thirdly, it was SUPER important that the sellers would be able to close that very month, in the month of September because they needed to move so quickly. So, they were looking for a closing of less than 30 days, preferably around 21 days.

There DID end up being competition, so we were not the only offer, there were only maybe 2 other offers. One other offer was at the same price as our offer, but that buyer was not able to close in the same month and I believe we had other stronger terms in our offer. So, we were able to tip the scale with terms in our favor to lock in the deal, even though price was the same.

The transaction itself was a bit of a whirlwind to close in 21 days. One key challenge that came up after we were in contract was that he needed his wife to sign a doc and she was out of the country at the time, and not coming back in the next 21 days. Luckily, the buyer already had plans to go visit even prior to our transaction. The dilemna was that the title company needs the doc to be signed by a US notary, which typically only happens at the US consulate. So, that was a bit stressful. He did find someone that could do it, but was charging $700 for that service. So, he actually ended up driving her over to the US border just to have a US notary, which cost less than $20. Inconvenient for sure, but it was a much less expensive option.

Another situation that came up was that the sellers did schedule a home, roof and termite inspection, but they were performed AFTER we got into contract. They were not able to get them done beforehand. A few things in the inspections came up that were a surprise, and we did ask for the seller to repair those items, since they were unknown to us before making an offer, and the seller was willing to make those repairs. So, that was great. The sellers fixed the roof, did a couple home inspection repairs, and did the Section 1 termite work, so all that we asked the seller to repair, they agreed to do so, which made the buyer happy. And, this type of renegotiation is exactly what I explain to my SELLER clients of why it’s so important to get inspections BEFORE buyers make their offer. Of course, in this case, as a BUYER agent, it was great, but when I work for a SELLER, it’s not so great.

And, the other notable item was that Citi Bank, the bank he was getting his loan was a bit frustrating for him. Apparently, they asked for docs multiple times, needed items in special formats that seemed unneccesary, one key person working on his file was out of the office the day before we were supposed to close and seemed to have no back up. And, it was really just the 11th hour rush to close on time due to various issues with the loan part of it and the lack of communication, most notably at the end when everyone was at a scramble, and all wondering what was going on when the gal was out of the office and didn’t seem to have anyone taking over for her. Also, he was working with Citi in Montana, so 3 hours ahead of us, and days were short when trying to work together because once 5pm would hit their time, we would start receiving the ‘out of office’ email replies.

I will say that the listing agent and sellers were so wonderful to work with, so accomodating, so great. It was more the loan part of the transaction that was a bit frustrating. But, the buyer was a real trooper, he got things done. I was super impressed how he could make things happen and get the docs over and the US notary in line. He was definitely on top of his game to keep the transaction moving and keep up with the pace to close on time. He told me he had almost given up trying to find a home to buy due to the prices and competition, so it’s so exciting that he did it! And, he was even able to lock in that home under the comparable home prices in the neighborhood. There was another home similar in the neighborhood that sold $130,000 HIGHER that closed while we were in contract, partly due to these factors, variables, and timing that just all worked out perfectly.

Sold for $1,150,000

Sold for $1,150,000

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