Boston Area Real Estate News – April 2015

Boston Area Real Estate News - April 2015

In our Boston Area Real Estate News for April 2015:

Renters Squeezed By Higher Boston Area Housing Costs

Renters are being squeezed in the Boston Area housing market by a disproportionate growth in rental costs on one side and stagnant income on the other.

New research finds that rent growth is far exceeding wages, according to the National Association of Realtors.

The NAR reviewed data on income growth, housing costs and changes in the share of renter and owner-occupied households over the past five years across the country. Lawrence Yun, NAR chief economist, says the disparity between rent and income growth has widened to unhealthy levels and is making it harder for renters to become homeowners.

Income Not Keeping Up With Boston Area Housing Costs

The Boston Area housing market is seeing a disproportionate growth in rental costs and stagnant income

In the past five years, typical rent rose 15 percent while the income of renters grew by only 11 percent. The gap has worsened in many areas as rents continue to climb and the accelerated pace of hiring has yet to give workers a meaningful bump in pay.

The share of renter households has been increasing and homeownership in the Boston Area housing market is falling. Those financially able to buy a home in recent years were insulated from rising Boston Area housing costs since most take out 30-year fixed-rate mortgages with established monthly payments.

Moreover, a typical homeowners’ net worth climbs because of upticks in home values and declining mortgage balances. The result has been an unequal distribution of wealth as renters continue to feel the pinch of increasing Boston Area housing costs every year.

Meanwhile, current renters seeking relief and looking to buy are facing the same dilemma: home prices are rising much faster than their incomes. With rents taking up a larger chunk of household incomes, it's difficult for first-time buyers – especially in high-cost areas – to save for an adequate downpayment.

NAR's research analyzed changes in the share of renters and homeowners, mortgage payments, median home prices, median household income for renters and the rental costs in 70 metro areas. Even with the tax benefits of owning versus renting, affordability is still the major stumbling block for many who would like to enter the Boston Area housing market as an owner rather than a renter.

Speaking of taxes and the benefits of owning versus renting, we're devoting the rest of this month's newsletter to the subject of taxes…

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Some Last Minute Moves for Taxes

Here we are, time to do taxes, and this is no April fools joke.

Taxes are due April 15th. Here are some tips for you last minute filers

With just two weeks left of tax-season 2015, here are a few actions worth taking to save you money on your 2014 taxes, jumpstart savings for you or a relative, or possibly get a tax break on health coverage for 2015.

  • Contribute to an IRA. You have until April 15th to contribute to a 2014 traditional IRA, potentially reducing your taxable income. The maximum deductible contribution is $5,500 for those under age 50 and $6,500 for those age 50 and older. Your deduction will be limited based on income and whether you or your spouse has a retirement plan at work. Do you own a small business? Then you might be eligible for higher income and contributions limits through a simplified employee pension (SEP) IRA. Go to irs.gov and search for IRS Publication 590, “Individual Retirement Arrangements,” for details on contributions and income limits.
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  • Contribute to the IRA of a young relative or someone else starting out. Lower-income workers of all ages will benefit in three ways: more savings, less taxable income, and, if they're not medically insured through your plan or one at work, a larger insurance premium tax credit.
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  • Apply for health-insurance coverage. Taxpayers in states with state-run health-insurance Marketplaces who didn't realize they would owe a penalty for lack of coverage in 2014 can take advantage of extended sign-up periods for 2015 coverage, through April 17th or even later. They may find themselves eligible for income-based tax credits to use toward premiums.

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Don't Let Tax Identity Theft Happen to You

While we're on the subject of taxes, let's look at a growing problem and hopefully help you avoid calamity.

Tax-related identity theft can turn your life upside down and take years to resolve. You may know of someone who has had this happen to them. Someone submits an electronic tax return containing personal information about the person along with a bogus return address. The mess takes piles of paperwork, a tax advocate, and can take years to resolve.

Fortunately, consumers are more aware of the problem, and the IRS has made strides to educate the public, help victims, and prevent a recurrence. Here's some advice to flag potential problems:

I.D. Protection Tips

Protecting sensitive information in the first place and following up quickly to minimize the damage are paramount. Healthy skepticism can go a long way. For instance:

Ignore e-mails and social media purportedly from the IRS. The IRS will NEVER contact taxpayers by e-mail, text message, Facebook, Twitter, or other social media. Nor does it send e-mails stating that you're being audited or getting a refund. That's a "phishing" scam, which you should report at phishing@irs.gov.

Confirm the authenticity of letters from the IRS. Check the agency's official contact page.

Check the URL of "IRS" tax information pages. The agency's website begins with www.irs.gov. Others are fakes.

If You Become a Victim

Hundreds of thousands of people have been victimized by identity thieves. To help those taxpayers, the IRS is:

  • Assigning victims a unique personal identification number. It must be included on their tax returns. This has given a lot of people peace of mind. It means faster processing and a speedier refund.
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  • Speeding up victim case resolution. Because resolving I.D. theft cases can take up to six months, the IRS has assigned more employees to sort through the details and streamline the process.
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  • Lending an ear. The IRS now has a dedicated section on its website devoted to the problem. In addition, it has implemented a special phone number for victims. The IRS Identity Protection Specialized Unit is available at 1-800-908-4490.

If you haven't already filed your taxes, good luck over the next two weeks. And remember, filing an extension for your taxes doesn't mean an extension to pay. You still must submit what you think you'll owe whenever you get around to filing or face penalites and interest from April 15th to the day you finally pay up.

Boston Area Real Estate News – March 2015

Boston Area Real Estate News - March 2015

In our Boston Area Real Estate News for March 2015:

Home Prices Up Year-Over-Year

Home prices across most of the country were down for December, but still faired better than they were a year ago.

Black Knight Financial Services released its latest Home Price Index Report this past week, which showed that home prices nationwide were down an almost-flat 0.1 percent in December. At the same time, 2014 ended with home prices doing 4.5 percent better than a year prior.

Boston Area home prices were down in December, but up overall in 2014 over the previous year

According to the report, the average home prices in the U.S. in December were around $241,000, up from $230,000 a year before and inching closer to the June 2006 peak of $268,000.

The Northeast and Midwest showed the most notable price drops in December, while a few metro areas actually showed rising home prices for the month.

It's not unusual to see home prices and sales drop off during December, as most people have their focus on the holidays.  However, data suggests that's all about to change…

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Why Boston Area Home Prices May be Ready to Lift Off

Data suggests that Boston Area home prices are about to accelerate.

Earlier this week, the S&P/Case-Shiller Home Price Index, on a month-over-month nonseasonally adjusted basis, posted an increase for the first time since August. Winter's chill is beginning to thaw, even though old man winter is still clinging on in many areas. On a seasonally adjusted basis, the index posted its best price gain since 2014. Prices, however, are still more than 16 percent below their prerecession peaks.

A few things have been holding back Boston Area home prices lately. For one, inventories have dried up a little, limiting choices. The National Association of Realtors (NAR) notes that families are staying in their homes longer, an average of 10 years vs. the long-term norm of seven years. Wage gains have also been lukewarm so far in the recovery, which is hampering first-time buyers. And evidence shows that student loan debt is limiting the ability of many Millennials to get a mortgage.

Yet positives are showing up.

The household formation rate has increased to its highest level since the housing bubble. New-purchase mortgage applications are inching higher, thanks to the recent decline in home loan interest rates. (See our next story below)

New first-time homebuyer affordability, according to the NAR, has returned to early 2014 levels. And thanks to deleveraging efforts — defaults, short sales and the like — household mortgage debt has returned to 2001 levels, according to data from the Federal Reserve.

While some hurdles still remain, including relatively tight mortgage credit conditions, Boston Area home prices look ready to accelerate as winter — which has been brutal in much of the country — gives way to the summertime peak in housing activity. Plus, this year's prices could get a boost because relatively fewer homes are available. As Boston Area home prices rise, new construction activity will follow, providing a lift to U.S. economic growth later this year.

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Boston Area Mortgage Rates Rise for Third Straight Week

Boston Area mortgage rates are still well below year-ago levels, but rates rose for the third consecutive week this past week.

Freddie Mac says the average rate on a 30-year fixed-rate mortgage rose to 3.80 percent in the week ending Feb. 26, up from 3.76 percent last week. A year ago, 30-year rates averaged 4.37 percent.

A 15-year fix averaged 3.07 percent this week, up from 3.05 percent. A one-year adjustable-rate mortgage averaged 2.44 percent, down from 2.45 percent.

Freddie Mac says rates rose this week, in part, on strong housing data. New home sales topped expectations in January, hovering near a six year high. The monthly S&P/Case-Shiller Home Price Index showed prices in December in the 20 largest cities were up an average of 4.6 percent from a year earlier.

Stay plugged in with us right here, and we'll keep you up to date on Boston Area mortgage rates, as well as news affecting interest rates overall.

Boston Area Real Estate News – February 2015

Boston Area Real Estate News - February 2015

In our Boston Area Real Estate News for February 2015:

Protect Your Boston Area Mortgage Until It's Funded

Getting a Boston Area mortgage does not just entail applying for the loan and getting an approval letter. There are still things that can go wrong, and you need to be aware of these so you don't find yourself out all the cash to get the loan, and still not get the funds you thought you were approved for.

Why Your Boston Area Mortgage May Not Get Funding

Your Boston Area mortgage can still fall apart even after you think you are approved.

You've gotten the call that your Boston Area mortgage was approved, and your lender coordinates a closing date with you. You get the movers all lined up, you notify the utility companies to switch the untilites over to your name effective on your closing date, and you send out the change of address notices. Everything's all set to move in, until you get another call from your lender that says, your loan has fallen through.

There are no formal statistics on deals that are approved but then don't actually close. These 11th hour disapprovals happen more often than many people realize. What they also don't know is that losing the loan at the last moment is almost always preventable and possibly fixable.

The most common mistake people make after their loan has been approved but before it closes is taking out additional credit after the lender has reviewed your credit report. Buying furniture on credit after you've been approved, or new appliances for the house, are both big no-no's! If your income to debt ratio was close during the initial documentation review, taking on more debt might push you into a debt ratio the bank deems unacceptable.

The bottom line is — just don't do it. Wait until your deal has completely closed before taking on any new debt. Your normal purchase of gas and a night at the movies isn't likely to cause any problems. It's a major purchase or opening new accounts that will get your loan denied.

Another mistake that may or may not be repairable is changing jobs during the loan funding process. Lenders almost always verify your employment shortly before the loan is set to close. If anyone that submitted financial documentation for your loan is planning to changed employers or stop working, it's best to wait until after the loan closes.

One you will never recover from is if you submit fraudulent income statements. When getting a Boston Area mortgage, there are no undocumented income statements. The lender will validate your income statement with the IRS or other taxing authority. What you submit to the lender must be exactly what you submitted to the IRS. Often the original loan approval is based on a contingency that your income be validated by the IRS.

Between the time you are initially approved for your Boston Area mortgage and when the deal closes, try to keep everything the same regarding your financial situation.

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Boston Area Mortgage Rates Up

Boston Area mortgage rates ticked up this week for the first time in 2015 following positive home sales reports.

Freddie Mac says a 30-year fixed-rate Boston Area mortgage averaged 3.66 percent this week, up from 3.63 percent last week. A year ago, 30-year rates averaged 4.31 percent. The all-time low of 3.31 percent was set in November 2012.

A 15-year fix averaged 2.98 percent this week, up from 2.93 percent. A one-year adjustable-rate mortgage rose to 2.38 percent.

New-home sales in December rose 11.6 percent, a better monthly gain than had been expected. Existing-home sales rose 2.4 percent in December.

A separate report from the National Association of Realtors said pending sales of existing homes, a more forward-looking gauge of housing market activity, fell in December, though contract signings remained above year-ago levels.

We'll continue to keep you updated here on any news that might affect Boston Area mortgage rates, either up or down.

Boston Area Real Estate News – January 2015

Boston Area Real Estate News - January 2015

In our Boston Area Real Estate News for January 2015:

Boston Area Housing – What to Expect in 2015

As we turn the calendar to 2015, it seems only fitting that we explore Boston Area housing and some of the things to watch for in the new year.

2015 Boston area housing forecast and what to expect in the new year.

Boston Area Housing – Prices, Inventory and Sales

Let's start our look at Boston Area housing with Prices, and what's expected to happen in 2015.

When all the figures are in, it appears Boston Area housing prices – as measured by the national repeat sales index (Case-Shiller, CoreLogic) – will be up about 5% or so in 2014 (after increasing about 12% in 2013).

Some of the key factors in 2012 and 2013 were limited inventory, fewer foreclosures, investor buying in certain areas, and a change in psychology as buyers and sellers started believing house prices had bottomed.  In some areas, there appeared to be a bounce off the bottom – but that bounce appears to have ended in 2014.  The investor buying has slowed – as have distressed sales.

The consensus of housing analysts appears to be for price increases of around 3.5% to 4.0% in 2015.

Inventory – It appears housing inventory bottomed in early 2013. The question is, will inventory increase further in 2015, and, if so, by how much?

Inventory is not seasonally adjusted, and usually inventory decreases from the seasonal high in mid-summer to the seasonal lows in December and January as sellers take their homes off the market for the holidays.

The Boston Area housing market is slowly moving back to normal, and real estate is very local, as we all know. But our best guess at this point is, available inventory will increase further in 2015. If this holds true, it will keep home price increases from going to high too fast, which is never a good thing for the Boston Area housing market.

Sales – CoreLogic released its 2015 Housing Outlook that shows home sales will increase by 9 percent. The most important economic trend is that employment growth for millennials began to improve in 2014, with the 25- to 29-year-old segment experiencing a 3 percent improvement in employment growth — one percentage point higher than the overall employment growth rate. That's important because this age group is the key first-time homebuyer segment.

When it comes to the Boston Area housing market, 2015 may be the year first-time home buyers make a comeback. With rents rising faster than incomes, many Millennials are expected to start looking to buy homes of their own.

Here are two more Boston Area housing market trends economists and other industry experts expect to see in the year ahead, in additon to the price expectations and inventory projects we just covered.

Looser Lending Standards – In early December, Fannie Mae and Freddie Mac put new lending guidelines in place and started offering 3% down payment mortgages that will make it easier for more first-time buyers to qualify for a mortgage.
Add to that a strengthening job market, and prospects look much brighter for young home buyers.

First time home buyers are important to the overall Boston Area housing market because a spike in the number of first time home buyers should spark a chain reaction by enabling existing homeowners to sell their homes and buy more expensive ones.

Mortgage Rates – If there's any single market trend that real estate industry pros have gotten consistently wrong lately, it's the direction of mortgage rates. But most do expect rates to rise at some point in 2015.

In December, the Federal Reserve signaled that it would not raise the Federal Funds rate until the summer of 2015 or perhaps even later.

With the mortgage rate guessing game continuing as we start the new year, many experts believe rates will peak in 2015 at 4.75% for a 30-year fixed rate mortgage, and even if they hit 5.00%, that's still a very favorable rate, historically.

An increase to 4.5% from the current 4% adds about $60 a month to mortgage payments on a loan with a principal balance of $200,000. Not enough to keep buyers away, when rental rates are increasing much faster, comparitively speaking.

As the economy improves and salaries rise, Millennials are expected to become a bigger force in the Boston Area housing market in the new year. Households headed by Millennials are expected to see significant growth in 2015, particularly as the economy continues to make gains.

Millennials are expected to drive two-thirds of household formations over the next five years, according to a report from the National Association of Realtors. The forecasted addition of 2.5 million jobs next year, as well as an increase in household formation, are the two factors that realtor.com® points to in driving more first time home buyers to the Boston Area housing market.

As always, we'll continue to track all of these Boston Area housing trends for you throughout the new year and keep you updated right here.

Boston Area Real Estate News – December 2014

Boston Area Real Estate News - December 2014

In our Boston Area Real Estate News for December 2014:

Boston Area Lease Purchase Full of Pittfalls

In a Boston Area lease purchase, in most cases, you will rent at a higher cost than the going market rate. Prior to moving in, you agree on a potential purchase date and purchase price for the home. You may buy the property at any point during the rental period up until the lease option expires, providing the allowance to do is spelled out clearly in your agreement. The lease option period can be any length of time that you and the seller agree to, ranging from several months to several years.

Entering into a Boston area lease purchase agreement can be full of pitfalls for the buyer

If you do end up buying the property, the seller will usually credit part of your rent back to you, often-times the portion of your rent that was above market rate. You can opt to put this money toward a down payment and closing costs, or keep it. The purpose of the above-market rent is to give the seller an incentive to complete the transaction. If you do not purchase the property, all of the rent you paid remains with the seller, giving the seller an incentive for taking the property off the market during the time you were renting it.

How a Boston Area Lease Purchase Benefits Sellers

A Boston Area lease purchase favors the seller if he or she is having a hard time selling their property. The rent-to-own option provides the seller with an alternative to lowering the price, taking the home off the market, or renting the home long-term. In the meantime, the Boston Area lease purchase helps the seller pay the mortgage, property taxes and insurance. Unlike a traditional rental, tenants are more likely to take special care of the property because they hope to own it at the end of the lease purchase time period.

How a Boston Area Lease Purchase Benefits Buyers

The biggest advantage a buyer would have with a Boston Area lease purchase is financial, of course. If buyers don't have the down payment saved or adequate monthly income to qualify for a mortgage but believe they will within the next couple of years, a Boston Area lease option allows them to accelerate the path to homeownership. By signing a contract now, the buyer locks in a purchase price, which means no worrying about rising home prices.

Also, a seller will usually continue to pay the property taxes, insurance and maintenance and repairs on the property. And by living in the home, the buyer gets a lengthy test drive before diving into the financial commitment of owning the home themselves.

Best of all, if the buyer decides to walk away from the deal, the only real consequence is the loss of that portion of rent paid that was above market rate. If the buyer ends up buying the property, the seller will credit part of the rent back to the buyer, often more than the portion of rent that was above market rate.

Boston Area Lease Purchase Full of Risks For The Buyer

A would-be buyer should be aware of the many things that can go wrong in the process before getting involved in a Boston Area lease purchase agreement. Before entering a rent-to-own agreement, a potential buyer should:

Check the seller's credit report. – Look for potential warning signs that the seller may be in financial trouble, such as delinquent accounts or a large amount of outstanding debt. Even after a satisfactory credit check, a potential buyer who currently lives in the home should still pay attention to any warning signs that would indicate that the seller is in financial distress. Some examples include phone calls from debt collectors and suspicious-looking notices that are sent to the house.

Understand that the seller could lose the property during the rental period. – This could occur for any number of reasons such as if he or she is unable to make the mortgage payments, a tax judgment is placed on the property, he or she goes through a divorce, is being sued, etc. If the seller loses the property, the potential buyer loses the possibility of buying the property, forfeits the extra rent paid and will have to find a new place to live. There is one possible exception: if the home becomes bank-owned through foreclosure, the bank might consider selling the home as soon as possible to the Boston Area lease purchase buyer in order to avoid the hassle of maintaining and marketing the property to a different buyer. In this case, the rent-to-own buyer would have to decide whether the purchase is feasible at the new date, and possible new terms of purchase.

Ensure that the Boston Area lease purchase option clearly states who is responsible for maintenance or repairs. – This agreement should also specify the types of changes or improvements (if any) the potential buyer is allowed to make to the property during the lease term.

Be sure to enter a "lease-option agreement" rather than a "Boston Area lease purchase agreement". – The former grants the option to buy at any time during the rental period, while the latter requires purchase by the end of the lease period and has legal ramifications for backing out.

Do market research and obtain a home inspection. – This is how you can be sure the home purchase price is fair before ever signing a contract.

Be aware that if the seller is unscrupulous, he or she can refuse to sell at the end of the lease-option period. – This means that all the above-market rent money paid will be lost. A seller may also try to back out of the contract if the real estate market has appreciated rapidly and the property significantly increases in value. Of course, neither of these actions is legal, but if the buyer doesn't have the financial resources to hire a lawyer, there won't be much recourse against dealing with a shady seller.

Understand that if the market declines, the buyer will still have to pay the higher price stipulated in the contract to own the home. – However, if the price is too high, the lessee can just walk away and shop for a different property. However, the buyer will lose that portion of the rent that would have gone toward a down payment, so it's important to do the math necessary to determine whether walking away is the best option.

Talk to a mortgage broker and ensure that you're in a position to buy the property. – Even if the lessee decides to buy the house, it is possible that he or she will not qualify for the mortgage loan required to make the purchase. Finding this out before entering a Boston Area lease purchase agreement, therefore, can save a lot of grief down the line.

Obtain a condition of title report. – This can help a buyer learn how long the seller has owned the property. The longer the seller has owned it, the more equity and stability he or she should have built up in it.

While Boston Area lease purchase arrangements can have many potential pitfalls, they can be a win-win situation between a trustworthy seller and a prudent, financially responsible buyer. If you can find an arrangement that you can agree on and a house that you'd like to own one day, this could be the perfect way for you to step out of your apartment and put down some roots.

It is also strongly advisable to find yourself a buyer's agent or broker to help you with this whole Boston Area lease purchase agreement. They will have experience dealing with the pro's and con's, and can point out things you may never think of on your own.