Don't Go It Alone When Buying A New Home

Part of the problem that caused the recent housing slump is that many home buyers have been taken advantage of. They have bought homes without a licensed real estate agent looking after their best interest. State License Law require that licensed agents act in the best interest of their client whether they be house sellers or buyers. This is called agency, and a large part of the State Licesing examination deals with knowledge of this subject. Basically agency is the "golden rule", the agent will act for their client exactly like they would act for themselves. In a few cases a real estate agent will represent both the buyer and seller of a piece of real estate. This is called dual agency and a very tricky situation because the agent is being asked to represent both sides of the transaction in their best interest. The agent has to disclose and get the written approval of both clients before they can move forward in this dual agency transaction. Sale persons for new home developments do not have to be licensed. They are paid by the developer to sell homes and are expected to perform. When a new home buyer comes in the door these independent sale persons do not have to disclose dual agency. In this situation there are many cases where the true cost of that new home are not disclosed. These understated costs have included a significant understatement of future real estate taxes, the high cost of adjustable rate mortgages, the future cost of neighborhood association fees, the under-escrowing of future association provided maintenance costs, or the amount of closing costs involved. Too often buyers think they are saving money by not being represented by an agent. This is not the case because in Indiana the agent's fee is paid by the seller, not the buyer. In conclusion don't go it alone, make sure there are no financial surprises in your new home a few years down the road, use a licensed real estate agent in your home purchase.

Home Appreciation

Homes over the last 40 years have appreciated at about 4% a year, or at 0.5% above the inflation rate. As prices fluctuate outside this norm they tend to return to that norm over time. Thus the 14% appreciation we experienced a couple of years ago was almost certainly not sustainable. Consequently the real estate "bubble" burst and prices have dropped by around 10% to their historic average. It also means in the long term house prices will once again start appreciating at roughly 4%. Housing has historically been demand driven, primarily by the growth of the population. The housing boom of the late 1940s was driven by the troops returning from overseas and wanting to to buy homes financed by the GI bill. The increased divorce rate, and lower birth rate have decreased the average person per house, and accordingly increased the house demand. The wealth created in the last ten years created a market for second(and third) homes and in the process increased demand. The recent fall of the dollar in relation to other currencies has made U.S. housing look cheap in relation to overseas housing. This has increased the demand for "vacation" homes, particularly along the coasts, for overseas owners. Because all regions of the country grow, or contract at different rates each may in a different trend. Generally speaking the coasts experience much wilder home value fluctuations than the northeast or midwest. While housing prices have historically been demand driven the recent real estate bubble was in part created by building more housing than demand dictated. This was in part the result of home building becoming increasing a national function replacing in a large part the local home builder. This resulted in many markets, a disconnect between the local demand and supply.

Be Intentional In Your Home Buying Decsion

Too many people go through life with no plan. This results in not achieving their life's goals. Be intentional with your decisions, know where you are going and how you will get there. This is particularly true with home decisions. Buying a home is probably the fourth most important decision of your life after chosing a spouse, a career, and education choices. Many people react to home purchasing decisions with no thought as to their long-term goals. Is the environment important to you? Then chose a home closer to work. Is wellness and fitness important for you? Then select a home near parks, recreational facilities or trails. Will your career cause you to move every few years? Then consider renting because the purchase and sales cost of frequent moves will not be offset by real estate's value appreciation. Also real estate is not a liquid asset and in times of market fluctuation you may not be able to sell your home quickly. Don't spend more than 30% of your gross income on all the expenses associated with a home. Do you want to be active in your place of worship? If so chose a home location that is close and easily accessible. If you have children check out the performance of local schools but also look behind the statistics. Some stats are adversely affected because the school districts are not afraid to take on the challenges of a larger disadvantaged school population. Want to generate maximum wealth in your home? Achieve maximum wealth by not taking a 30 year mortgage, but a 25, 20 or even a 15 year mortagage. You will be surprised what a difference a shorter term loan can make. If you are going to live in your home for less than five years do not buy the first home in a new subdivision. When you are ready to sell you could easily be competing with your same house for sale by the developer. The average term of home ownership in the United States is only seven years. In conclusion be intentional in your home buying decisions to get a jump start on the rest of your life.

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