Positive Economic Reports Impacting Mortgage Rates
Mortgage rates for 30-year fixed mortgages rose this week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace at 4.19 percent, up from 4.14 percent at this same time last week.
The 30-year fixed mortgage rate steadily increased last week, peaking at 4.26 percent on Monday before dropping to the current rate this morning.
'Last week, rates rose slightly on improving unemployment and manufacturing data,' said Erin Lantz, vice president of mortgages at Zillow. 'This week, fewer significant economic reports are slated for release, and markets are more likely to be swayed by the geo-political situation in Ukraine, which could affect rates.'
Additionally, the 15-year fixed mortgage rate this morning was 3.18 percent, and for 5/1 ARMs, the rate was 2.78 percent.
30-Year Fixed Mortgage Rates Fall to Lowest Level in 6 Weeks
Mortgage rates for 30-year fixed mortgages fell over the past week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace at 4.14 percent, down from 4.20 percent at this same time last week.
The 30-year fixed mortgage rate plummeted on Wednesday from 4.24 percent to 4.12 percent, where rates have continued to hover into this week.
'Last week, rates dropped to their lowest levels in six weeks as investors shifted out of stocks and into safer assets, like U.S. Treasuries and mortgage-backed securities,' said Erin Lantz, vice president of mortgages at Zillow. 'This week, there is a full slate of economic reports scheduled for release, with the potential to nudge rates up.'
Additionally, the 15-year fixed mortgage rate this morning was 3.15 percent, and for 5/1 ARMs, the rate was 2.80 percent.
30-Year Fixed Mortgage Rates Fall for Second Week in a Row
Mortgage rates for 30-year fixed mortgages fell last week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace at 4.20 percent, down from 4.25 percent at this same time last week.
The 30-year fixed mortgage rate peaked on Wednesday at 4.28 percent before falling to 4.20 percent over the weekend.
'Last week mortgage rates dipped after Friday's job report which, while fairly strong, failed to meet the market's expectations,' said Erin Lantz, vice president of mortgages at Zillow. 'This week, we expect rates to remain about where they are now, and aren't anticipating any market-moving surprises with the release of the FOMC's (Federal Open Market Committee) minutes from the March meeting.'
Additionally, the 15-year fixed mortgage rate this morning was 3.17 percent and for 5/1 ARMs, the rate was 2.86 percent.
30-Year Fixed Mortgage Rates Drop, Erasing Prior Gains
Mortgage rates for 30-year fixed mortgages fell last week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace at 4.25 percent, down from 4.27 percent at this same time last week.
The 30-year fixed mortgage rate peaked on Wednesday at 4.29 percent before falling to 4.20 percent, where rates hovered for the remainder of the week.
'Rates dropped last week, erasing most of the run-up triggered previously by the Fed's surprisingly aggressive guidance on plans to increase the Federal Funds Rate,' said Erin Lantz, vice president of mortgages at Zillow. 'We expect rates to remain fairly steady this week, not making any significant movements until after Friday's jobs report.'
Additionally, the 15-year fixed mortgage rate this morning was 3.22 percent and for 5/1 ARMs, the rate was 2.77 percent.
Wilkes-Barre Ranks Low for Bible-Mindedness
By Nora Tooher
Wilkes-Barre isn't the least Bible-minded city in the country - just one of them.
Two new studies - one from BibleGateway, an online Bible portal, and one from the American Bible Society - both place Wilkes-Barre's Bible-mindedness in the bottom fourth among 100 U.S. cities. ABS ranked Wilkes-Barre 84th, nine points higher the No. 93 it received from BibleGateway.
In the BibleGateway survey, Atlanta was named the most Bible-minded, followed by Dallas; Washington, D.C.; Charlotte, N.C.; Nashville, Tenn.; Raleigh, N.C.; Waco, Texas; Chattanooga, Tenn.; San Antonio and Houston.
The least Bible-minded cities, according to BibleGateway, were Salt Lake City; Burlington, Vt.; Providence, R.I.; Albany and Buffalo, both in New York; Portland, Maine; and Las Vegas. Hartford, Conn., was No. 90; Green Bay, Wis., was 91 and Syracuse, N.Y., was 92.
Critics of BibleGateway's findings noted that its rankings were based on the number of relative page views per household on its website, prompting criticism from LDS Church leaders in Salt Lake City about its methodology. Mormons search the Bible using an app from the LDS Church.
Salt Lake City fared slightly better in the ABS survey, in which it was ranked 87th.
East Coast cities rated low for Bible-mindedness in both surveys. New York City was ranked 74th by BibleGateway and 89th by ABS. Boston was 82nd (BibleGateway) and 98th (ABS).
Besides Boston, the least Bible-minded ciites, according to ABS, are Providence, R.I.; Albany, N.Y.; San Francisco; Cedar Rapids, Iowa; Buffalo, N.Y.; Hartford, Conn.; Phoenix; Burlington, Vt.; and Portland, Maine.
ABS chose Chattanooga as America's most Bible-minded city, followed by Birmingham, Ala.; Roanoke, Va.; Springfield, Mo.; Shreveport, La.; Charlotte; Greenville, S.C.; Little Rock, Ark.; Jackson, Miss. and Knoxville, Tenn.
The ABS study found that an inverse relationship exists between population size and Bible friendliness. Of the top 25 Bible-minded markets, only three have a population of greater than 1 million households: Charlotte, Nashville and Dallas.
Odds Favor Low-Income Scranton Kidsâ€™ Upward Mobility
By Nora Tooher
Scranton is ranked ninth among the nation's 100 largest commuting zones in terms of the odds it offers low-income children for upward income mobility.
Children in the Scranton commuting area, including Wilkes-Barre, from families in the bottom fifth of national income have a 10.7 percent chance of moving to the top fifth, according to a recent study from Harvard University.
San Jose, Calif., offers the best odds, at 12.9 percent, followed by Toms River, N.J., Bakersfield, Calif., and San Francisco, all 12.2 percent; Santa Barbara, Calif., 11.3 percent; Washington, D.C., 11 percent; Seattle, 10.9 percent and Salt Lake City, 10.8 percent. New York, 10.5 percent, rounded out the top 10.
In addition to Scranton, several other Pennsylvania cities also offer good odds of economic success. Reading, 9.6 percent, was 18th and Pittsburgh was 20th, at 9.5 percent.
Allentown, at 8.3 percent, was ranked 33rd. The Harrisburg commuting area, including York Township, a suburb in fast-growing York County, was ranked 40th, with 7.9 percent odds. Erie, 7.5 percent, was 46th. The Philadelphia commuting area was 49th, with 7.4 percent odds of upward income mobility.
Memphis, Tenn., was ranked last among the 100 largest commuting areas, offering only a 2.8 percent chance for low-income children to move to the top income level.
Other commuting areas with tough odds were Columbia, S.C., 3.7 percent; Fayetteville, N.C., 3.8 percent; Charlotte, N.C., 4.4 percent; Milwaukee and Atlanta, both 4.5 percent; Greenville, S.C., and Greensboro, N.C., both 4.7 percent and Dayton and Columbus, Ohio, both 4.9 percent.
The study found that upward income mobility varies substantially within the United States.
Areas with greater mobility tend to be less segregated, have less income inequality, better schools, greater social capital and more stable families.
The researchers also concluded that intergenerational mobility is significantly lower in the United States than in most other developed countries, especially in some parts of the United States, such as the Southeast and cities in the Rust Belt.
30-Year Fixed Mortgage Rates Spike Eight Basis Points
Mortgage rates for 30-year fixed mortgages rose last week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace at 4.27 percent, up from 4.19 percent at this same time last week.
The 30-year fixed mortgage rate surged early last week, peaking at 4.33 percent on Thursday before dropping down near 4.28 percent, where rates hovered for the remainder of the week.
'Last week, rates surged after the Federal Reserve suggested it might increase the Federal Funds Rate sooner and more significantly than expected, surprising many market observers who look to this rate for guidance on where mortgage rates are headed,' said Erin Lantz, vice president of mortgages at Zillow. 'This week, we expect rates will inch up further on the momentum of last week's direction from the Fed and expectations of positive news from economic data scheduled for release.'
Additionally, the 15-year fixed mortgage rate this morning was 3.22 percent and for 5/1 ARMs, the rate was 2.87 percent.
30-Year Fixed Mortgage Rates Jump 10 Basis Points
Mortgage rates for 30-year fixed mortgages rose this week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace at 4.21 percent, up from 4.11 percent at this same time last week.
The 30-year fixed mortgage rate steadily rose last week, peaking at 4.27 percent on Monday before dropping slightly to today's rate.
'Rates rose on Monday to levels not seen since mid-January, as the situation in Ukraine appeared to improve and Friday's jobs report beat expectations,' said Erin Lantz, director of mortgages at Zillow. 'This week, we expect rates to remain fairly steady, unless the economic reports being released in the latter half of the week are strong enough to accelerate the gradual upward momentum we saw following last week's jobs report.'
Additionally, the 15-year fixed mortgage rate this morning was 3.15 percent and for 5/1 ARMs, the rate was 2.74 percent.
Philadelphia Crime Rate is Fifth-Highest in Nation
By Nora Tooher
The City of Brotherly Love has one of the highest crime rates in the country.
Philadelphia, located just 143 miles southeast of Wilkes-Barre, ranks fifth on a new list of large cities with high crime rates.
The 2014 city crime rankings by Washington-D.C.-based CQ Press were based on six crime categories - murder, rape, robbery, aggravated assault, burglary and motor vehicle theft - reported to the FBI. All metro areas and cities with populations of 75,000 or more that reported crime data in those categories to the FBI were included.
Among metros of all sizes, the Scranton-Wilkes Barre metro area had the 75th lowest crime rate.
Of the nation's largest cities, Detroit had the highest crime rate, followed by Baltimore; Memphis, Tenn., and Milwaukee. Indianapolis was sixth, followed by Oklahoma City; Washington, D.C.; Houston and Dallas.
El Paso, Texas, topped the list of big cities with the lowest crime rates, followed by New York City; Austin, Texas; San Diego; Los Angeles; Charlotte, N.C.; Portland, Ore.; San Jose, Calif.; Seattle and San Antonio.
Among mid-sized cities with populations of 100,000 to 499,000, Flint, Mich., had the highest crime rate, followed by Oakland, Calif.; St. Louis; Cleveland; Newark, N.J.; Bridgeport, Conn.; Birmingham, Ala.; Jackson, Miss.; New Orleans and Richmond, Calif.
Amherst, N.Y., had the lowest crime rate of mid-sized cities, followed by Irvine, Calif.; Cary, N.C.; Frisco, Texas; Naperville, Ill.; Woodbridge Township, N.J.; Thousand Oaks, Calif.; Murrieta, Ga.; Glendale, Calif.; and Edison Township, N.J.
And if you're looking for a small city with a low crime rate, Fishers, Ind., a suburb of Indianapolis, has the lowest crime rate of cities with populations of 75,000 to 99,999. Camden, N.J., is the nation's small-city crime capital, with the highest crime rate among smaller sized cities.
Several cities, including Chicago, were not included in the study because crime data for all six crime categories was not available. Others left out of the analysis included Columbia, S.C.; Columbus, Ohio; and Honolulu.
Study: Steel City is Worldâ€™s Most Affordable Housing Market
By Nora Tooher
You don't have to leave Pennsylvania to find the best housing value in the world.
According to a recent annual Demographia International Housing Affordability Survey, Pittsburgh's real estate market, just a four-hour drive from Wilkes-Barre, is the most affordable in the entire world.
The study by the Illinois-based consulting firm analyzed 85 major worldwide markets with populations of more than 1 million each in Australia, Canada, Hong Kong, Ireland, Japan, New Zealand, Singapore, the United Kingdom and the United States.
Housing affordability was defined as the ability to buy a home for less than about three times an urban household's yearly income. The rankings were determined by median house price divided by median household income.
With a median house price of $116,000 and a median household income of $51,400 as of the third quarter of 2013, Steel City offered the best housing value of any major market in the world.
Detroit followed Pittsburgh, Grand Rapids, Mich., and Rochester, N.Y. A cluster of other U.S. cities ranked among the most affordable markets worldwide, including Atlanta; Buffalo, N.Y.; Cincinnati; Cleveland; Indianapolis; St. Louis and Columbus, Ohio.
Hong Kong was deemed the least affordable market in the world, followed by Vancouver, Canada; San Francisco; Sydney, Australia; San Jose, Calif.; Melbourne, Australia; Auckland, New Zealand; San Diego; Los Angeles and London.
The study also analyzed the U.S. market on its own, and found 84 affordable markets, 100 moderately unaffordable markets, 29 seriously unaffordable markets and 23 severely unaffordable markets.
U.S. markets pegged as 'severely unaffordable' were: Boston; Los Angeles; Miami; San Diego; New York; San Francisco; San Jose, Calif.; and Seattle.
The study warned of indications of a 'substantial worsening housing affordability situation in California,' especially in San Francisco, San Jose, San Diego and Los Angeles.
Ireland had the most affordable markets of the nations studied, followed by the United States, Canada and Japan. The least affordable markets were in Hong Kong, Australia, New Zealand, Singapore and the United Kingdom.
30-Year Fixed Mortgage Rates Decline First Time in 4 Weeks
Mortgage rates for 30-year fixed mortgages fell this week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace at 4.11 percent, down from 4.18 percent at this same time last week.
The 30-year fixed mortgage rate declined steadily last week, dropping to as low as 4.09 percent on Monday before rising slightly to today's rate.
'Rates drifted downwards last week as geopolitical concerns emerged from the turmoil in Ukraine,' said Erin Lantz, director of mortgages at Zillow. 'This week, while the jobs report on Friday is typically the dominant market catalyst, we expect rates will remain depressed while the situation in Ukraine remains unsettled.'
Additionally, the 15-year fixed mortgage rate this morning was 3.08 percent and for 5/1 ARMs, the rate was 2.69 percent.
30-Year Fixed Mortgage Rate Remains Unchanged
Mortgage rates for 30-year fixed mortgages remained unchanged from last week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace at 4.18 percent, the same rate recorded last Tuesday.
The 30-year fixed mortgage rate remained stable for the week, hovering between 4.17 and 4.22 percent for the majority of the week.
'Rates were steady last week as uncertain economic data left markets with a fuzzy picture of the health of the economy,' said Erin Lantz, director of mortgages at Zillow. 'This week, we expect the uncertainty to continue, leaving rates fairly flat.'
Additionally, the 15-year fixed mortgage rate this morning was 3.17 percent and for 5/1 ARMs, the rate was 2.75 percent.
30-Year Fixed Mortgage Rate Rises for Second Consecutive Week
Mortgage rates for 30-year fixed mortgages rose again this week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace at 4.18 percent, up from 4.14 percent at this same time last week.
The 30-year fixed mortgage rate hovered between 4.17 and 4.21 percent for the majority of the week, spiking to 4.27 percent on Wednesday before dropping back down to 4.18 percent on Thursday.
'Last week, rates rose briefly when comments by Janet Yellen, the new Federal Reserve Chair, ended speculation that the Fed might delay the winding down of its stimulus program due to recent weak economic data,' said Erin Lantz, director of mortgages at Zillow. 'During this holiday-shortened week with limited economic data scheduled for release, we expect rates will continue to follow the gradual upward path of the past two weeks.'
Additionally, the 15-year fixed mortgage rate this morning was 3.14 percent and for 5/1 ARMs, the rate was 2.71 percent.
30-Year Fixed Mortgage Rate Rises Slightly
Mortgage rates for 30-year fixed mortgages rose this week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace 4.14 percent, up from 4.09 percent at this same time last week.
The 30-year fixed mortgage rate rose early last week before leveling off near 4.13 percent on Friday.
'Rates were essentially unchanged last week despite a weaker than expected jobs report,' said Erin Lantz, director of mortgages at Zillow. 'Although this week marks Janet Yellen's first congressional testimony as the new Federal Reserve Chair, we expect rates will remain fairly flat.'
Additionally, the 15-year fixed mortgage rate this morning was 3.13 percent and for 5/1 ARMs, the rate was 2.80 percent.
30-Year Fixed Mortgage Rate Drops to 4.09 Percent â€” Lowest Rate in 10 Weeks
Mortgage rates for a 30-year fixed mortgage fell this week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace at 4.09 percent, down from 4.18 percent at this same time last week.
The 30-year fixed mortgage rate steadily declined last week, dropping to as low as 4.07 percent on Monday before rising to the current rate this morning.
'Recent weakness in emerging markets helped push rates down last week to 10-week lows as investors turned toward more reliable assets like mortgage-backed securities,' said Erin Lantz, director of mortgages at Zillow. 'If Friday's jobs report is strong enough, it has the potential to pause a downward slide in rates and offset emerging market concerns.'
Additionally, the 15-year fixed mortgage rate this morning was 3.10 percent and for 5/1 ARMs, the rate was 2.72 percent.
30-Year Fixed Mortgage Rate Declines Slightly
Mortgage rates for 30-year fixed mortgages fell this week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace 4.18 percent, down from 4.23 percent at this same time last week.
The 30-year fixed mortgage rate remained stable for the majority of the week, peaking on Wednesday at 4.26 percent before dropping to the current rate over the weekend.
'Last week, rates dipped abruptly after China's lackluster manufacturing report triggered concerns about the health of the global economy,' said Erin Lantz, director of mortgages at Zillow. 'This week, markets will look to Wednesday's Fed announcement about unwinding its stimulus program and Thursday's GDP numbers as indicators of whether the U.S. economy can continue to improve. Mortgage rates could be affected by either or both.'
Additionally, the 15-year fixed mortgage rate this morning was 3.18 percent and for 5/1 ARMs, the rate was 2.80 percent.
Wilkes-Barre Home Values Increasing
By Nora Tooher
Home values in Wilkes-Barre are on the rise, with the latest Zillow Value Home Index up almost 1 percent on a year-to-year basis.
Wilkes-Barre's home value index of $52,200 was up 0.6 percent at the end of August from the same period a year before, and 0.2 higher from the previous month.
The ZHVI is Zillow's median valuation for a specific geographic area, and includes single-family homes, condominiums and cooperatives.
Home values in several nearby communities also increased through the end of August. Wilkes-Barre Township's ZVHI of $60,800 was up 7 percent on a year-to-year basis. And home values in Hanover Township increased a strong 14 percent from the same period a year ago to $79,200.
Communities where home values declined from a year ago included Kingston, down 4.4 percent; Forty Fort, down 5.7 percent; Luzerne, down 0.6 percent and Swoyersville, down 7.1 percent.
Nationwide, home values increased through August to $162,100, a 6.6 percent gain from the year before, and the largest increase since July 2006.
Eighty-five percent of the metros Zillow covers recorded annual home value appreciation in August. And 20 of the 30 largest metro areas covered by Zillow saw annual appreciation of 10 percent or more.
Nationwide, metros with large annual increases in August included Sacramento, Calif., 34.1 percent; Las Vegas, 30.6 percent and Riverside, Calif., 29.7 percent.
But Zillow expects the double-digit home appreciation gains to slow as inventory shortages ease and mortgage rates rise.
Statewide, Pennsylvania's home value index of $144,400 was up 3 percent from the same period last year.
In the Philadelphia metro area, home values increased 2.5 percent on an annual basis to $189,600. Pittsburgh metro home values rose 4.6 percent to $112,900, and the Allentown metro ZVHI increased 0.9 percent to $165,700.
Zillow is forecasting a 5.2 percent increase in U.S. home values through August 2014.
Scranton-Wilkes-Barre Ranks Last in Economic Recovery
By Nora Tooher
The local economic picture remains gloomy, with the Scranton-Wilkes-Barre metro area, ranked dead last among the nation's 100 largest metro areas in recovering from the recession.
The Brookings Institution's second-quarter Metro Monitor index of economic recovery showed that the local metro area dropped one spot from 99th in the first quarter to 100th at the end of the second quarter.
Employment recovery has been slow, with the Scranton-Wilkes-Barre metro area ranked 97th, with only a 1.4 percent employment gain from its recession low in the fourth quarter of 2009.
Area house prices slipped 1.1 percent from the first quarter of the year to a new low, placing the region 78th for housing price recovery.
Unemployment is down only 0.5 percent from its trough peak in the fourth quarter of 2012.
Output, a total measure of economic activity, is up a healthy 6.3 percent from its low point in the third quarter of 2009, but remained flat from the previous quarter.
The economic recovery picture was mixed in the rest of Pennsylvania, with Philadelphia and Harrisburg also at the bottom of the pack, ranked 97th and 95th overall, respectively.
Allentown, where economic output has increased 9.1 percent from its recession low, was ranked 66th overall and Pittsburgh came in 52nd.
Nationwide, most large metro areas saw output rise during the second quarter, while 15 experienced contractions.
The longer-term pace of recovery ranks strongest in metropolitan areas of Texas, Louisiana, Tennessee, the Carolinas, Michigan and parts of California, the Mountain West and the Pacific Northwest.
Austin, Texas; Portland, Ore.; and San Jose, Calif.; have each posted output growth of more than 20 percent since their respective low points.
Metro areas with the weakest output recovery were clustered in Florida, California, New York, Pennsylvania and Connecticut.
In parts of the country hit hardest by the housing crisis - California, Florida, Michigan and the Mountain West - recoveries have been strong, but there is still substantial ground to be made up, the report's authors said.
In contrast, metro areas of the Northeast, where the recession was relatively weaker, are exhibiting much slower growth today, according to Brookings.
Q & A With Americaâ€™s Real Estate Professor: Home Warranties
Q. What do you think about home warranty for rentals? Best regards. Azhar, San Diego, Calif.
A. I'm glad to see that you are a rental property owner now! I've been hearing more and more investors that use home warranties, which is quite a turnaround from a few years ago. I'll note how these work and a few issues to consider.
A home warranty costs about $350-$500 per year. Many sellers provide a home warranty to a buyer at the sale in hopes that gives the seller a little extra protection in case an appliance or other item breaks. And some home warranty companies do a decent job servicing their policies, but some don't do a good job. Home warranty companies, unfortunately, are some of the most complained about service providers for unsatisfactory service, but many have good experiences too. You just have to find the good ones!
The main issue to understand is that a home warranty doesn't cover everything that could go wrong. Like any insurance policy, there are exclusions for some issues, plus there are items like pools or air conditioners that cost extra. Most policy buyers don't read the policy and just assume, incorrectly, that everything is covered.
So if you are going to buy a policy, make sure you understand what is covered and what is not covered. Due to the relatively low cost, I don't see any issues with buying a policy for a year and seeing what you experience if you need to make a service call and how good a job the company does on that call. Make sure to fill me in on your experience next year.
Q. We are doing a 1031 exchange and will soon be selling property for about $2,100,000. We want to buy some rentals and thought about Texas, but taxes are insane. So we are considering California. My question to you is do you think buying four to five ready-to-go rental properties is a good idea and where do you think we should be looking, since with the 1031 exchange we have limited time to identify properties. Josh B., North of Los Angeles
A. Make sure to get good legal, accounting and 1031 exchange advice months before you close escrow on what you are selling. Identifying a property within 45 days that you can actually get under contract and buy is very tough. If you are trying to buy five properties, that's even tougher. You need the buyer of your property to work with you and agree to close escrow once you have all the replacement properties under contract and moving close to closing escrow. Otherwise, good luck completing the exchange.
Regarding buying rental properties, rentals are hard work. If you folks are older, you may not want to deal with rentals. Having a management company might help some, but might not help that much. So make sure you want to be landlords. Also, you should buy properties near where you live. If you have to travel long distances to service the property - even if you have a management company - this can be very disrupting to your life and you might find that the properties are more of a pain than they are worth.
Think it through and make sure the money you will save on taxes from the 1031 exchange is best placed in a relatively risky and high-maintenance asset like rental properties. If it doesn't make sense, find a better investment choice - which might not be real estate. Good luck!
Leonard Baron, MBA, is America's Real Estate Professor and is a real estate investment columnist for Zillow. Find more of his answers to property questions at Mint.com. Email your questions to: Leonard@ProfessorBaron.com
Q & A With Americaâ€™s Real Estate Professor: Foreign Real Estate
Foreign Real Estate
Q. We are Canadians living in Switzerland and are looking for a long term investment, hopefully to keep indefinitely. Have you heard of some of the leaseback opportunities in France? Are there advantages to buying some kind of property in Switzerland? I thought maybe it would be a good investment as there is limited supply and restrictions on foreigners, but I suppose it could work in reverse if you do need to sell. Deborah G., Switzerland
A. Buying good real estate is tough enough without adding in property in a far away land, with different property rights and laws, and significant potential challenges and legal fees to resolve issues if something goes wrong.
I am not saying that you cannot make money on far away real estate. However, real estate seems to work out best for people who are in close contact with their tenants and the properties. This will help you more easily resolve issues when they occur; and they will occur. For this reason I suggest you stay near your home base in your property endeavors.
A leaseback real estate transaction could be a fair deal, but what if the party leasing back fails to pay you, damages the property or terminates the lease? These are all the same issues with normal rental properties, but sometimes people think they don't apply when a fancy name like 'leaseback' is added. Take my word for it, they do!
So if you do a leaseback in Switzerland, you still need to do the same careful and prudent due diligence, analysis, credit and legal checks and financials. Good luck.
Appreciation in Value in Beach Properties
Q. I know you are not a fan of prize properties due to negative cash flows and I fully understand that. However, don't properties near the beach go up more in value than other properties, making their investment returns pretty good due to that added appreciation in value? Mary Sue H., Orange County, Calif.
A. Let's say it was true that beach properties went up more in value over other properties. Could they just continue to go up indefinitely until those prize properties were tens of millions of dollars while other properties stagnated and values just increased at the rate of inflation? Probably not. It just wouldn't be sustainable over time. At some point people would start avoiding the expensive properties while other people would chase the undervalued non-beach properties. And then prices would ease on the expensive ones and rise on the non-beach ones to an equilibrium of sorts.
Now, depending on where you look on the historical property price changes chart, sometimes beach properties did appreciate more. But sometimes non-beach properties would appreciate more. It's all about how you slice the data.
Regardless, no one can predict the future on pricing, and even if you believe beach properties appreciated more in the past, that doesn't mean they will in the future.
On the other hand, cash flows in the short term are pretty predictable. On a beach property you buy for $800,000, you'll probably be negative on rental income minus expenses of $30,000 to $40,000 per year. Over 10 years, your property may appreciate, but you will have contributed another $300,000 in cash to cover the negative cash flows. And that's just no way to invest.
Buy cash flow positive properties.
So, you are right. I don't like negative cash flow prize properties. Buy the moderately priced boring ones that pay the bills and really add to your wealth!
Leonard Baron, MBA, is America's Real Estate Professor and is a real estate investment columnist for Zillow. Find more of his answers to property questions at Mint.com. Email your questions to: Leonard@ProfessorBaron.com
Q & A With Americaâ€™s Real Estate Professor: Buying Ski Chalet in Switzerland
Buying Ski Chalet in Switzerland
Q. I have recently moved to Lausanne, Switzerland, and am interested in buying a ski chalet as a rental property and as an investment. Do you have any advice in this area? We are close to some of the best skiing and hiking in the world and feel there is some opportunity here. Thank you. Best regards, Deborah G., Switzerland
A. There are several issues I would caution you to consider.
1. First and foremost, will it be a good investment? This sounds like a prize property to me. And the problem with prize properties is that they generally have negative cash flows. Buying an investment property with negative cash flows is not a good idea in my opinion. Have you thought about whether or not you might do better with less hassle keeping your money in well-diversified financial assets?
To help determine if it will be a good investment, have you penciled out the rents and expenses on the property with conservatively estimated numbers? Will you be positive and earn a fair rate of return on the cash equity you invest?
This also sounds like it will be a short-term or vacation rental type of property. And unfortunately, those are some of the worst real estate investments. Management fees are very high because it is a ton of work. If you do manage it yourself, you'll soon learn that it's not much fun having to attend to guests once per week. Expenses you cover like utilities, insurance and furniture and fixtures are also very high and every issue is an emergency because your guests are only there a few days. The net effect is negative cash flows!
The better wealth-improving real estate assets are the nice, boring, moderately priced and cash-flow positive rental properties. And they're almost never in fancy areas.
2. Will you own the chalet at least 5 years? In general, thanks to exorbitant transaction costs on the sale of real estate, the breakeven timeframe to make your first dime of profit is generally 5 years. If you are not 100 percent positive you will own it for that long - and 10 years is a better bet - you're probably better off keeping your money out of real estate from a financial perspective.
3. Currency risk is the last issue. If you plan to move back to the United States (I'm assuming you are from the United States), you could lose all the money you make, if any, based on changes in currency. Of course you could double your money too, but don't count on that! Speak to a financial advisor about this issue.
I hope this frank and hopefully straightforward guidance will be of assistance to you.
House With Cement Slab Foundation
Q. My wife and I are looking at a house that is 35 years old and built on a poured slab concrete foundation. Most of the slab is under carpets and laminate flooring. Some areas that are just concrete have small cracks in them. I'm concerned because of the potential for costly repairs due to this issue. What do buyers normally do regarding this issue? Albert O., Gardena, Calif.
A. Most people don't do anything. But that isn't a very prudent way to buy real estate! You should consult with a local concrete foundation repair company and have them do an inspection of the property. Soil conditions, lot slope, water run-off and other issues can impact the cracking of a floor slab.
Some cracking is normal and not a big issue. On a townhome I purchased years ago that had small cracks in the slab, I asked my home inspector how old he thought the cracks were. He joked that that cracks started to form 40 years ago when the concrete truck left the plant on its way to deliver the wet concrete poured into my slab! And he wasn't joking.
All concrete forms cracks. The severity of the crack, the age of the crack (so how many years from when it was poured) and the likelihood of it expanding are what you need to know.
And a competent, local foundation slab consultant is the one to answer your questions. Good luck!
Leonard Baron, MBA, is America's Real Estate Professor and is a real estate investment columnist for Zillow. Find more of his answers to property questions at Mint.com. Email your questions to: Leonard@ProfessorBaron.com
Q & A With Americaâ€™s Real Estate Professor: Standard Tenant Rent to Income Percentage
Standard Tenant Rent to Income Percentage
Q. What is the percent of income plus debt that is customarily allotted by a tenant for rent and what percent should we as landlords accept to better ensure our tenants can pay the rent? Also, what is the best way to verify a prospective tenant's income? Tim C., Oceanside, Calif.
A. Renters are often going to be up to 50 percent rent plus debt to income - sometimes more! Most are going to be spending all of their monthly income on rent, debts, utilities and food and will have very little to put into savings. If their rent to income levels were lower, they'd probably be buying a personal residence instead of renting.
So when you think through their overall debt level and what works for you to accept, you need to look at their entire income and payments, consider how long they've been at their job, how secure is their job, what their prior landlord has to say about their payment history and if they have any past accounts in collections. You must look at everything to help you form an opinion on their ability to pay rent.
A longer-term job and good rental history shows an ability and willingness to pay their rent. However, there are no easy answers on what credit factors you should accept for a tenant. No tenants have a perfect credit, income, job or rental history, so keep that in mind.
For income verification, ask for paystubs and call and confirm their employment. Good luck.
Condo Purchase Noise Nuisance
Q. I recently bought a condo in a high rise in Fort Lauderdale. Shortly after moving in, I noticed a constant annoying buzzing in every room except the master bedroom. There is a transformer room across the hall from my unit which is thought to be the reason for this problem. The condo board does not seem concerned about this as my unit is the only one affected by the problem. Is the board responsible for remedying this problem since the transformer is a common element of the building? The transformer is owned by Florida Power and Light, and I am told the building would be responsible for replacing the transformer. I fear that this buzzing problem will lessen the value of my unit. Ken L., Ft. Lauderdale, Fla.
A. I am sorry to hear about this issue. And unfortunately there may not be an easy answer for your situation. You're going to need to talk to an attorney about specifics in your situation. But here are a few items to consider.
Is the noise a material issue to the sale of the property? Obviously you believe it is, but how loud is the noise emanating from that room? Would a typical person find it annoying? Or maybe are you a person very sensitive to noise, like me. The level of the noise might be an important issue. Anyone can claim noise is an issue, but the legal question would probably revolve around whether or not the noise would be disturbing to a reasonable person of normal sensibilities.
If it is a material issue, and the prior owner knew about the noise, he or she probably should have disclosed it to you in the purchase. If they didn't, you might have a case against them. If it was a bank seller who never occupied the property, the bank probably did not know and obviously the bank staff couldn't disclose it if they didn't know. The condo HOA board is probably not legally responsible to disclose anything like this about one of their units even if they knew, which they probably do not. Talk to an attorney regarding past case law on this issue.
You should first try to work diplomatically with the condo board of directors. But you need to first do the hard work yourself to find some possible solutions. If you do that, maybe they'll pay for it, or at least maybe might chip in some money to solve it. Most likely they will assist, as long as you're helpful and reasonable.
I'd work with the utility company first to find out about noise reduction strategies they've certainly used before in other similar situations. Hopefully there is a good solution. Noise proofing might do the trick, but it might not. So figure out if there is an answer to the issue and the cost, and propose it to the BOD. Alert them that you want to be a happy homeowner and this could happen to anyone, including one of them, so hopefully they'll be sympathetic and financially helpful. They have the power of the purse.
If you bought it from a party who didn't know about the noise, and there isn't a noise proofing solution, you may unfortunately be out of luck and it probably will diminish the value. Unfortunately, if you sold it, you would need to disclose it to the next buyer and obviously that would be an issue.
Hopefully you can find a solution and work out a financing plan to solve it. Good luck.
Q & A With Americaâ€™s Real Estate Professor: Evicting a Tenant
Evicting a Tenant
Q. I'm a rental property owner and have a tenant that keeps paying late and I'm getting a little frustrated and tired of it. I can terminate their lease, but I'm guessing if I do that I may have to evict them. What's the typical process and cost? Leo T., San Bernardino, Calif.
A. Sorry to hear about this. I'll throw some thoughts your way first.
One thing I'd like to know is other than paying late, are they good tenants, do they take care of your property, not annoy the neighbors? If yes, I'd give it another shot at trying to get them to pay on time. Have you talked to them about why they are late? Maybe they don't get paid until the 8th of the month and you could adjust their rent due date if you felt that is appropriate.
If they are not good tenants for many reasons, maybe it's time to part ways. Review the lease and make sure you stay within the terms of the lease and local laws on terminating the lease. Also, it's always best to try to get them out on a good relationship basis rather than letting things deteriorate. Maybe you can work out some deal that works for everyone.
If you think you're going to have to evict, and you believe they'll fight it, it's going to take 3-4 months and undoubtedly cost you $1,000-$2,000 in legal fees, plus lost rent which you'll never get back from them, plus any property damage they could do. But talk to an attorney in your area about the costs. That's a lot of money in addition to the stress and uncertainty you'll experience with the eviction process and timeframe.
So, if you give them notice of ending the lease, and you think it's going to be a brawl, you could always offer them some money to leave the house in a certain period of time and in good condition (cash for keys). Don't give them the money until they are out of the property and make sure they agree to give you easy access to show the house to other prospective tenants during the period when they are still there.
Doing 'cash for keys' may make you mad, since it's your property and they should follow the lease, but it's still probably the best way to get them out with the least hassle and the least cost to you. Good luck!
Mortgage Financing Getting More Expensive
Q. I hear that in 2014 it is going to be tougher to get mortgage financing, which will definitely drive interest rates up. What is your forecast? Mel R., Rye, N.Y.
A. Predicting the future is tough, especially in an economy that is still not operating on all four engines with a changing regulatory and political environment.
There are new rules on mortgage financing coming due with the Dodd-Frank Consumer Protection Act. This will reduce the number of people able to qualify for mortgages and reduce demand. Also, the Federal Reserve will most likely ease up on purchasing bonds which has artificially kept mortgage interest rates low for a few years. To add to that, mortgage loan guarantee fees have been going up at the Federal Housing Administration and are proposed to go up on Fannie and Freddie loans, although the new director of the group that regulates those loans may delay the higher fees.
Some of these issues will drop demand for financing, which should lower interest rates. Some of these will increase costs and fees on financing, which will effectively increase your borrowing costs.
In addition, if the economy starts to improve, investors in mortgage and other bonds will probably rotate their invested capital out of bonds and back into stock to earn higher yields. This will drive down prices of bonds, as demand for that secure asset lessens and drive up mortgage interest rates. We also have world instability, issues in China, Iran and Russia, the U.S. debt issue, and of course the demand and cost of oil. The United States could also fall back towards a recession, although that looks unlikely at this point, and let's hope for all of us it keeps improving!
All of these above items may impact mortgage interest rates one way or another in 2014. But, no one knows for sure which way the interest rate ball will roll.
Right now mortgage rates are still at historic lows. That's the best information we have. Good luck!.
Q & A With Americaâ€™s Real Estate Professor: Cancelling Private Mortgage Insurance
Cancelling Private Mortgage Insurance
Q. I bought a property 6 years ago and have private mortgage insurance. It's actually up in value and I'd like to get rid of this expense, but my mortgage lender has refused. Help! Allan M., Raleigh, N.C.
A. It used to be a huge fight with lenders to get them to cancel PMI. It still is tough most of the time. The Homeowners Protection Act of 1998 gave homeowners a lot more rights to help them cancel PMI. That being said, there are still many reasons a lender can refuse and make it difficult.
The first issue is that your property's loan-to-value generally must be below 78-80 percent. And that could include any second mortgage or HELOC. You must also be up to date on your mortgage. The lender may also require you to have an appraisal done for about $400 and if it doesn't appraise you're out that money.
If your lender has refused, get them to give you a written explanation and review that against the Protection Act information. Search online for more details.
If you think they should allow you to cancel, and they won't, you might want to contact the bank's legal department as a start and give them a written letter as to why you believe they should let you cancel PMI. Hopefully that will solve the issue. If it doesn't, and you're not happy with their response because you feel your property is qualified, you may have to hire an attorney to pursue your case. Good luck.
Q. Many investors I know in the city are considering buying properties to rent as short-term rentals. I was wondering if you know if these can be good investments? Marge I., Washington, D.C.
A. Any property can be a good investment, but it's unlikely a short-term rental is going to be one. There are several issues.
One issue is prices too high and net rents too low. In order to generate high rental income, you typically need to have a really good location. And with a really good location, comes a really high price and big mortgage.
So do the rents, less expenses, cover the mortgage and leave some cash left over is what you'd want to know. And the answer is probably not. Expenses on short-term rentals are like hotel expenses where 65-85 percent of revenue goes to operating expenses - a normal rental property's expenses are typically half that amount. That leaves only 20-40 percent of the rental revenue to cover the mortgage, so you're probably going to be negative on cash flows.
And any property with negative cash flows is probably not a very good investment, but talk to a financial advisor.
In addition to that, they are very management intensive. So management fees are very high 25-30 percent and if you want to self-manage, it's a full time job. And you won't have fun when every issue is an emergency!
Lastly, there are probably many new city rules and regulations coming on short-term rentals. Some HOAs ban them and some neighbors fight them.
I doubt the above sounds appealing to you. But talk to other investors for their guidance and opinions.
Q & A With Americaâ€™s Real Estate Professor: Paying Down a Mortgage Loan
Paying Down a Mortgage Loan
Q. I recently inherited a fair amount of money and I'm considering paying down my home mortgage balance. I'm a little hesitant because the interest rate on the loan is only 3.75 percent and I just paid several thousand dollars a few years ago to get this low loan rate. What is your view? Marjorie F., Miami, Fla.
A. Strictly from a financial standpoint, it would probably be a mistake to pay down your mortgage balance. Your home mortgage interest may be tax deductible, depending on your tax picture, and if it is then your after tax interest rate may be as low as 2.5 percent to 3 percent. You should keep that loan outstanding as long as possible.
Depending on your situation, you should probably hold that money in a more liquid financial investment and earn some interest or dividends that could be at a higher interest rate than your mortgage, still within some pretty low risk assets. Talk to a financial advisor. Holding some cash on hand will help in the future in case you have an emergency, like a job loss or uninsured property or health issues.
The only alternative to this guidance is that if you are getting older and risk averse, it might make sense, especially for peace of mind, to reduce your monthly housing cost by paying down the mortgage.
Overall, it's a personal choice, and hopefully this guidance gives you additional food for thought.
Real Estate Sales Professional Advising Client on HOAs
Q. I've read your articles before about HOAs and all the issues. I'd like to help my clients assess an HOA's condition so they can make better decisions. There are so many things to consider. Which ones are the most important? Marvin M., Upland, Calif.
A. Unfortunately HOAs are filled with landmines and as an agent you need to be very cautious about advising your clients as to any issues with HOAs. You should concentrate on providing them an education on how HOAs work, what documents they can review to assess the community, plus make sure they know that they might need to and should consider hiring an HOA expert, lawyer, CPA or some professional who will be independent and unbiased in reviewing the documents.
Be very careful and make sure they understand the HOAs are very complicated entities and you are not an expert. They must understand that you can guide them in some of the more important issues, but ultimately they need to review all the information, finances and documents and come to their own conclusions and opinions about the community HOA and whether it is smart to buy into that community.
You also may want to talk to your broker. If you belong to a Realtor association, ask their lawyer for more guidance on how you should discuss HOAs with your clients. Good luck.
Q & A With Americaâ€™s Real Estate Professor: Buy Personal Residence or Rental Property First?
Buy a Personal Residence or Rental Property First
Q. I am 29 years old and want to own real estate, both a home and rental property. Some people say I should buy the rental property first, so the income can help me qualify for a home. Some people say buy a home first. Do you have any thoughts? Jennifer L., Savannah, Ga.
A. If you want to own rental properties, and since you are young and mobile, the best way to get going is to buy a personal residence home that would make a good rental property, live there a few years, then rent it out when you move into your next home. That's the best way to go, and here's why:
- You will get the best financing, lower rate and cost, plus lower down payment, when you purchase a property as a personal residence. So you can put less down and hold onto your cash. It's also easier to qualify if you are buying a home as opposed to a rental property. You will sign a document at closing stating that you intend to live in the property for at least one year.
- Living in the property helps you learn about it. So years down the road, when your tenant calls about an issue, you'll know exactly what it is because you've experienced that electric, gas or water issue. This will help you better handle the issue at a lower cost.
- You can live there while doing renovations to the property. It's not fun, but paying rent somewhere else while your renovation on a property purchased for rental drags on, costing you money, is less fun. Plus you can take your time, shop around and get the best deals. If you are just buying a house to make it a rental, you're rushed and it can be a very stressful pain!
So find a nice rental property that you'll call your home for a couple of years, live there and then move to the next one. Repeat this exercise about 10 times in the next 30 years and you'll be a happy retiree!
Insurance for Fire-Prone Area
Q. I am considering buying a house in southern California in an outer wilderness type area, and I understand that some insurance companies are balking at providing coverage to some properties due to fire risk. Is this correct and what can I do to work around this issue? Martha M., San Bernardino, Calif.
A. There's no way around this issue. And you should really think this through. The reason insurance companies don't like to provide coverage in wilderness areas is because there is a higher risk of loss to them. So if you buy a property in these areas, there is a higher risk of loss to you.
Many insurance carriers are dropping coverage to these areas. Even the ones that still provide coverage may drop it in the future or significantly raise premium prices. Other carriers are just increasing premium prices right now. So that is what you are faced with going forward if you purchase one of these properties.
There is an insurer of last resort in California, the California FAIR Plan Association. So for owners who cannot get insurance elsewhere, this quasi-state agency can help. But you will have to pay for the coverage.
With those facts you can make an informed decision. Good luck.