Consider An Interest Only Mortgage

Most people don't realize that during the first 30 years of a fully amortized mortgage, very little money is actually going to pay off the principal.  During the first 10 years, most of the payment is interest only, however, the payment is higher than would otherwise be the case if it was actually an interest only loan.  So for some people living in real estate markets where homes tend to appreciate, it might make more sense just to get an interest only loan to get the lowest payment possible to invest the money in the stock market, 401K's or other investments, or perhaps to pay for things like child care.  If the home appreciates at just 3% a year, the homeowner will be growing equity in the home anyway even though nothing is going to pay off the principal. 

Certainly for people who will only be in the home for 10 years or less, for whatever reason, an interest only loan could make perfect sense provided homes in the area tend to go up in value over time.   Yes, you will owe the original loan amount whenever you sell, but if the home goes up in value, you paid a much lower payment for the time period allowing you to grow savings elsewhere or to cover other family needed expenses. 

Consult a good accountant to see what might be best for you based on your personal circumstances.  In many instances an interest only mortgage loan could be cheaper than paying rent.  If that is the case, home ownership is always the best option.    

More Homes On the US Market

The number of homes in the US on the market was still 37.5% less in June, 2021 than in June 2020, which has led to skyrocketing home prices in many markets.  Clearly, there is more demand than supply so that the national median sale price actually rose from $320,000 in April to $336,000 in June.  The good news however, is that inventory across the country rose by 1.9%, which means at least there was a few more homes for sale than months before.  

This is not much of an uptick unless it becomes a trend.  The fact is that the country is short 5 million housing units, which in particular is a killer for first time home buyers that tend to drive markets.  In fact, first time home buyers have been driven out of the market because they just could not compete with either all cash buyers, or buyers able to put 20% or more down to purchase a home.  And, of course, since many homes have been selling in bidding wars above list price, first time home buyers with low down payments just could not compete.  So, they have been forced to continue paying rising rents until the markets cool down. 

I suspect it will take two or three years for demand and supply to equalize.  It may not be a buyer's market for a while, which would take a downturn caused by much higher mortgage interest rates, but at least there may be more inventory to choose from, which should moderate prices.  The last year has been one of the most interesting in decades in the real estate market.  To say it has been a seller's market is an understatement.  

High Crime Rates Negatively Impact Property Values

 Aside from the threat to life, high crime rates impact property values.  Clearly, given a choice people would not want to buy a home in a neighborhood, or city with a high crime rate.   Fewer buyers means lower prices.   As as a result of some calls to defund the police, which is irrational, we are seeing a crime wave across the country.  Robberies, assaults and murder rates are way up in some of the largest cities in the nation.  

Regardless of your politics, it is time to call on elected leaders of both political parties to take action.  We need more cops on the street and they must be empowered to do their jobs.  This does not mean police brutality or use of force that is unnecessary; but given the criticism cops have faced, they are standing back rather than making arrests.  

This can't be allowed to continue because the murder rate in the United States is sky rocketing in many urban areas.  Also, dumb laws need to be eliminated.  California does not prosecute theft under a $1,000 in goods.  So thieves are going into stores with large plastic bags to steal up to the dollar limit.  Some stores in various areas are closing because the theft is unstainable.  In addition, some jurisdictions release criminals with no bail.  So crooks and murderers are back on the street the next day after an arrest.  This has to stop.

All Neighborhoods should have Neighborhood Watch to assist the cops with preventing crime.  High crime should be everyone's concern.  Aside from the threats to personal safety, it is costing people money.  Theft results in higher prices.  And high crime rates absolutely impact property values.  

Trading Commuting Time For A Larger Home At Lower Prices

 Years ago, when I was first married, we bought our first home in California 40 miles away from our work.  We were able to buy a large home at half the cost it would have been just 20 miles closer to work.  The end result was a 90 minute commute in bumper to bumper traffic, which we did for 8 years.  It was miserable.  During the winter, I left my home in the dark and I came home in the dark.  I did not see our home during daylight hours except on weekends.  We did not know how miserable it really was until we no longer had to do it with a job transfer, when we bought our second home.  

This is a common story.  There are many people around the world who commute 60 - 90 minutes or more each way to go to work whether driving, or taking public transportation usually trains in those regions that have them.  At least on the train you can read or nap.  The question is whether the trade off of buying a bigger home at a lower price is really worth it.  Certainly, for people with families that need more space, it may be the only option.  However, there is no doubt that it impacts quality of life.  

That is why when Covid hit and many people were given the option of working from home, they jumped on it.  So much so that now that they have been able to work from home, many are fighting going back to the office.  A lot of this has to do with commuting time, which in many cities is 60 - 90 minutes each way.  Fighting bumper to bumper traffic is stressful.  Certainly, after we moved and my commute fell to 30 minutes each way, I knew I would never take a job again that required long commuting distances.  

So when considering a home purchase, factor in both the cost of commuting in terms of time and money.  Just maybe it makes more sense to buy a smaller home closer into work if you are still required to go into the office.  The best of all worlds is the ability to work from home because then you can live virtually anywhere in the country.  

Living And Working In Another Country

Some people decide to retire to another country as a way to get a lower cost of living and or for the "charm".  Of course others often take work assignments paid for by their employers.  In either case, there are some things to consider.  Clearly, there are cultural and many times language differences between countries.  And for Americans that are used to having everything at their finger tips and many services available to them when needed, living in another country can be very frustrating. 

While foods are available in every major country in the world, there may not be the selection that is typical in an American grocery store.  And, the prices for food could be higher in many countries in the world than is common in the US.  And, then there are services.  There is enough competition in the US that when we need to buy services, we can usually get things done pretty quickly.  That is not always true in other countries.  

However, the most important issue is medical services.  Medicare coverage does not apply outside the United States.  So retired people would have to come back to the United States to access non emergency medical care.  But if something happens in country and travel is impossible,  there could be a huge problem.  Certainly, living or working in a country with substandard medical care could be life threatening.  And, since you would not be a citizen of that country, it may be necessary to buy additional medical insurance to provide for coverage and or medical evacuation.  If on a global assignment companies usually provide benefits necessary to deal with medical issues.  Those just moving to another country would be on the own.  There are lots of things to consider before moving to another country and or taking a global assignment.  Make sure you check all the boxes.   

Quality of Life - Family & Friends

 Quality of life could mean different things to different people.  For some, it is about shopping, entertainment and restaurants nearby.  For others, maybe it is all about sports, fishing, hiking and camping nearby.  For everybody, quality of life should involve good medical services nearby because as we get older, we will all need medical care of one sort or another.   

Aside from amenities that contribute to quality of life, we all need family and friends nearby to complete the picture.  Reports indicate that people with family and friends regularly in their lives live longer.  That could be because people are social animals.  Human beings need interaction with others to be happy.  I know, I know some people are loners.  They choose to live a solitary life.  The problem is, the day will come when someone needs help.  Crap happens and when it does, it is nice to have family or friends you can depend on.    

In addition to doing things outside the home with family and friends, ultimately our homes are a meeting place bringing people together for meals, life events, parties etc.  And whether we live in a small home or a mansion, making it people friendly is not that hard to do.  Get rid of clutter so there is space for people.  Buy comfortable furniture in and outside to accommodate at least 6 - 10 people at a time.  Cook together.  The old days of Mom being in the kitchen alone doing the cooking to bring it out to a dining room are long over.  Put your guests to work helping to prepare a meal.  It is both fun and makes doing it easier for the hosts.  

Heart is where the home is.  At Paragon we help people sell and buy homes designed for entertaining.  We know that family and friends are the key to a happy life.  Living in a comfortable home whether big or small is part of the story.  

Everybody Loves Italian Food - Home Cooking

It seems that everybody loves Italian Cooking.  But what most people in the United States think of as Italian cooking is mostly Southern Italian cooking because most of the immigrants that came to America were from Southern Italy.  So mostly foods prepared with red sauces, rather than white sauces.  Of course, things like pizza, which was invented in Naples, Italy, spaghetti and meat balls, sausage, ravioli and lasagna are most common.  And, it might be that the reason for so much use of tomato sauce is because the Spanish, who controlled much of Southern Italy for decades brought the tomato back from the new world and introduced it to Europe probably through the bottom of the Italian boot.  But Italian food is so much  more.  

As someone who grew with my Italian mother always in the kitchen, I came to realize the value of the kitchen in every home no matter what your ethnic origin.  Since I started cooking about 10 years ago, I know how important it is to have all the mixing bowls, platters, big pots, great knives, all sorts of utensils and of course olive oil, the food of the Gods, for good home cooking.  That is certainly true related to Italian Cooking.  

Veal is cooked by Southern and Northern Italians differently.  Northern Italians invented Veal Marsala with a brown gravy, Veal Piccata with a lemon sauce and Veal Milanese, which is breaded Veal cutlets.  And then there is Oso Bucco, cooked for hours which is a Veal Shank often served with polenta, a kind of the Italian version of grits.  Southern Italians created Veal Parmesan covered in cheese with a red tomato sauce usually served with Spaghetti.  

And then there all the fish dishes.  The stuffed calamari, which is incredible with or without red sauce.  Obviously, Italy is surrounding by the Mediterranean and Adriatic Seas, so every kind of fish is on every menu again often cooked differently from North to South.  Bacalao, which is served in all Mediterranean countries is dry salted cod.  Most of the Italian cold cuts that are very expensive like Prosciutto, Capicola and various hams come from Northern Italian.  Some of the salamis and peperoni's come from Southern Italy.  

But I get back to the importance of the kitchen in every home.  Foods cooked from scratch take a lot of time and effort.  The reward is mouth watering meals that will keep family and friends coming back for years.  Kitchen renovations provide the best return on investment.  So, if you are thinking of remodeling for sure put some of your money in creating a gourmet kitchen.  Then buy a good Italian cook book and start having some fun.  

Condos Are Selling At A Record Pace

While most people would prefer single family homes and they tend to appreciate more than condos, condos are now selling at a record price as the cheaper alternative to single family home ownership.  Even so, many condos are selling for more than the list price.  No doubt, a lot of first time home buyers are gravitating toward condos.  The fact is that any kind of home ownership is better than paying rent unless someone is only going to be the area for a short time.  Certainly, if your horizon is three years or longer, buying a  home, if you can afford to do so is better than renting.  

Condo living comes with some trade off's.  Clearly, it is higher density living so your neighbors are essentially your house mates.  If they are good neighbors no problem.  If they are bad neighbors, could be a nightmare.  The home owner's association is there to help deal with bad neighbors because they must comply with the rules; but it can take weeks, or months to get compliance from stubborn people.  And don't forget, you must comply with the rules too.  If you are a non conformist, condo living might not be for you.  

If buying a condo, do your homework.  Before signing on the dotted line read the HOA documents so you fully understand the rules you must live by.  Make sure the HOA is financially sound because if not, you could get hit with a big assessment.  Some people think condo living is maintenance free.  While technically true, you will be paying monthly HOA dues to have them deal with the maintenance.  So one way or another you will be paying for the things that must be repaired or replaced.   

Condo living is not for everyone; but it is a good alternative to renting.  At Paragon, we help people sell and buy homes for the best price possible.  If there is a condo in your future, we can help make it happen.  

Home Ownership Should Be Part Of Your Investment Strategy

 While home prices can go up or down, over the long run, home ownership should be part of your investment strategy.  And, the good news at least for now is that home appreciation is not taxed.  So as the value of your home goes up, you are increasing the equity you have in your home.  Currently, if you sell your home and it is your principal residence, couples can keep up to $500,000 in gain tax free.  Singles can keep up to $250,000 in gain tax free.  Amounts above these dollars would be taxed as capital gains, which at the moment is still lower than most income tax rates.  

If you earn interest or dividends on stock or other investments unless in IRA's or 401K's, you will pay federal and state income taxes on those earnings in most states each year.  So in essence appreciation on the value of your home works a lot like an IRA in at least deferring any taxes that could apply if and when you sell.  And, for now anyway since much of the gain on sale would be tax free for most people, home ownership is given preferential tax treatment.  

Usually, though not always over many years homes will increase in value.  This is especially attractive since mortgages today are at such low interest rates.  It could be that your house payment is about the same or less than what it would cost to rent like square footage, which makes home ownership even more attractive.  Yes, you will have things like maintenance and other expenses related to home ownership; but those things are factored into rents too.  

If you don't own a home do what you can to become a first time buyer.  If you do own a home, look at it as the investment that it has become.  You can Zillow your home to get an idea of current value.  At Paragon, we work with families to sell and buy homes at the best price.  We know that a home is an investment and counsel our customers on the benefits of home ownership.  

Your Credit Score Is Very Important

Most people think that their Credit Score is all about getting a mortgage to buy home.   And, while that is true, your credit score is used related all purchases that involve credit of any kind along with the rental of a house or apartment.  It does not take much to impact your credit score negatively.  If you miss payments or are consistently late on payments, it will negatively impact your credit score.  If you default on a loan or file bankruptcy, your credit score will go down dramatically.  

The agencies that monitor credit scores usually use the following ratings:

800 - 850 Exceptional

740 - 799 Very Good

670 - 739 Good

580 - 669 Fair

300 - 579 Poor

In order to get preferential interest rates on loans, your credit score would have to be Good or Above.  It is possible to get a loan at a Fair rating; but interest rates will be higher because you would be consider a credit risk.  Obviously people in the Poor category are probably not getting loans and or if they do get loans, the interest rates would be outrageous.  

It is important to recognize that when renting a home or apartment as part of the application process, the owner or landlord will run a credit report.  In choosing who to rent to, the owner will choose the tenant with the highest credit score.  It is possible that unless the rental is in a bad area or in a less desirable location, an owner will not rent to anyone with Poor credit.  So, it is really important to maintain as high a credit rating as possible by paying your bills on time.  

Estate Planning Before It Is Too Late

 Surprisingly, some couples with considerable assets do not have their affairs in order meaning they do not have good estate plans in place.  It is important to sit down with family members, sons or daughters and have the What If discussion.  What if Mom dies.  What if Dad dies.  Things can change very suddenly if someone falls ill especially if that someone is the spouse that handles all the couple's finances and the other spouse is clueless.  

Ideally, most if not all payments should be on automatic debit from a checking account so that at least necessary payments will continue without late penalties.  If one spouse dies, the other will get the higher of the two Social Security payments; but it still means a sudden loss of income.   The time to deal with housing issues is while both spouses are healthy.  If living in a multi story home, maybe its time to downsize to a one story house that would be suitable for the surviving spouse.  

Fortunately, we moved my parents into a 55 or older gated community long before my Dad passed away.  Since my Mother handled their financial affairs, she experienced no real disruption in her life when my father died.  Had my Mother died first, my father would have needed assistance, but at least the housing situation would have been fine.  

Once someone turns 70 every year is like a dog year meaning the equivalent of 7 years.  Health circumstances can change suddenly, which requires a quick reaction from family members to deal with the medical issues at hand.  Most important, every couple of any means should have a good estate plan in place to deal with the What If's.  And, families need to be involved to best understand what could happen when the first parent suddenly passes away.  

Older High Rise Buildings - More Inspections Needed

 It is safe to say that after the collapse of a 40 year old high rise condo building in Florida and the deaths that followed, values for similar properties have probably plummeted.    No one would buy a condo in a like building without significant inspections, structural analysis etc.  Home owner associations would be wise to get engineering reports and quickly first to make sure buildings are safe and any remedial work needed is done fast,  but also to make any sales that might otherwise occur even possible.

There is a pretty good chance that lenders will stop lending on purchases in many of these buildings and insurance may be impossible to get without significant assurances that these structures are safe.  To be clear, aside from the tragic deaths that occurred from the collapse of the building in Florida, from a real estate perspective,  it has created one big mess. 

Buildings in Florida built after Hurricane Andrew have been built with standards to withstand a category 5 hurricane.  That means a whole lot more cement block construction, more cement in general and more steel for strength.  These older buildings are just not built to these standards.  My guess is that upon further inspection, many of these buildings will have to be torn down because the remedial expense will just be too great.  That probably leaves lenders holding the bag because people will just walk away and default on their mortgages if condos are uninhabitable.  If that happens, lenders may refuse to do new mortgages on buildings with similar construction.  That will make these condos worthless.  It is clearly a disaster for all concerned.   

Bidding Wars To Purchase A Home Slowing Down

For the past six months since there has been so little inventory in many real estate markets, homes have been selling above list price as a result of bidding wars taking place.  There is now buyer fatigue and a little more inventory hitting the market so though still happening bidding wars are slowing down.  This is good news for first time home buyers in particular, who just can't compete with all cash offers and or high down payment offers.  Those making offers trying to buy a home with nothing down, or just 3% down were not even considered by sellers.   They have been out of luck. 

Money talks so all cash offers with no contingencies and a quick closing date are always at the head of line related to offers.  After those, people who can put 20% or more down would be given preference.  And, of course the deal always goes to the highest bidder all other things being equal.  This is what happens in a seller's market. 

But the tide will eventually turn.  If mortgage interest rates do back up, it will cool the real estate market.  When that happens we will see more inventory and prices will go down some; though since the country is short 5 million homes, this could take a few years.  In real estate, timing is everything.  It is always best to sell when there is a seller's market and buy when it is a buyer's market.  Unfortunately, things don't always work out that way for everybody.   

Inflation Is Coming - What It May Mean To You

Many economist are predicting that we will see major inflation in the United States because of all the money the federal government is pumping into the economy.  Home prices have been going through the roof because there is not enough supply to meet demand and the price of materials has sky rocketed related to the building of new homes.  We need 5 million more homes presumably built in the US to keep up with demand.  It could take 3 - 5 years for that to happen so home prices should continue to remain high unless and until mortgage rates go up dramatically, which would cool the market down.  

However, inflation related to the purchase of goods and services is a threat to all Americans.  We see the cost of gasoline going up dramatically, which eventually ties to the cost of everything because most goods are eventually shipped by truck to your neighborhood.  If you commute long distances, it will cost you more to go to work, as well.  Most important, if your income is not going up to pay for higher prices, it means you will ultimately have a lower standard of living.  

The good news is that if you locked in a low fixed interest rate mortgage, at least your house payments will not be going up.  The same could be true for a car payment.  But, if your home appreciates dramatically, in many cities, your property taxes could go up.  You can also expect to see higher premiums for home insurance, since replacement value cost would go up with the higher cost of materials to rebuild your home in the event of a disaster.  All of us will have to adjust to higher prices.  It could mean eliminating various unnecessary discretionary expenses just to pay for day to day goods and services.  

Home Insurance - Time For A Review

 It is time to call your insurance man to review your home insurance.  With property values sky rocketing and more importantly the cost of materials going through the roof, you need to make sure you have enough insurance to cover the full replacement value of your home in the event it burns to the ground.  The odds are pretty good that you may be underinsured if you have not done a review in a very long time.   The last thing you need is arguing with your insurance company in the event of a disaster.  

Full replacement value will vary by area.  If you live in high cost California or other states with high values and high cost of living, the likelihood is that the cost per square foot to rebuild your home will be higher than if you live in a second or third tier city and or lower cost of living state.  The amount of insurance you purchase will determine the premium you pay.  If you need to increase your premium to buy more coverage, there is a pretty good chance that the premium will go up 10 - 20% per year; but that is better than not having enough insurance if disaster strikes.

The more equity you have in your home, the more important that you have the right coverage.  The reality is that if you have little equity in a worse case scenario, you could just walk away and hand the keys to the bank.  However, if your home is paid off and or you have a lot of equity, you will not want to walk away in the event of a disaster.  You will want your home rebuilt with the same quality materials and standards it has now.    

Aging Baby Boomers - 74 million by 2030

 Baby Boomers are turning 65 at the rate of 10,000 a day for the next 15 - 20 years.  By 2030, there will be 74 million Baby Boomers age 65 or older.   This huge demographic will have a tremendous impact on our country.  The real question is where are all these people going to live.  Half of them have little in savings and so their Social Security income, assuming it still exists in its present form, will be most of their monthly earnings.  

Even today, 65% of those who need home care and or assisted living is being paid for by Medicaid.  That basically means that they have no means to pay for their own care so the government must step in to provide financial assistance.  This entitlement actually happened with the passage of ObamaCare.  However, when 30 or 40 million Baby Boomers can't care for themselves in the next 20 years, the government will face an impossible situation.  With Social Security and Medicare headed toward insolvency if something is not done pretty quick adding this Medicaid entitlement to the mix is going to lead to huge government deficits.  

From a housing perspective families may start to recognize that they may have to care for their aging parents.  We could see more situations where Mom or Dad moves in with one of their children.  This could have an implication related to housing design.  Many news homes are now being built to accommodate multi generational living with mother in law suites.  I suspect we will see housing additions and or renovations to allow for Mom or Dad moving in with one of their children because they will not be able to afford any other solution.  This could be a back to the future moment as occurred decades ago when parents lived with their children. 

The next 20 years will present many challenges related to caring for this Baby Boom generation.  There will have to be solutions for many that combine family and government assistance.  The day is coming fast.