New Home Source Blog

Why People Buy Homes

 Do you know why people buy homes? The answer to this question is what my friend Stan Kates called the greatest secret in real estate sales. I remember it clearly. He was speaking at the International Builders Show. He looked left and right, lowered his voice almost to a whisper and said, "Do you know why people buy homes?" He paused, gave a 'shush' and continued, "People buy homes because they see other people buying homes."

Finally people are buying homes again. Nowhere near the levels of 2005 or 2006, but according to the National Association of Realtors (NAR) August 21, 2009 sales report, "Existing home sales ... rose 7.2 percent to a seasonally adjusted annual rate1 of 5.24 million units in July from a level of 4.89 million in June, and are 5.0 percent above the 4.99 million-unit pace in July 2008. The last time sales rose for four consecutive months was in June 2004, and the last time sales were higher than a year earlier was November 2005."

This represents more evidence that the market bottom has been reached. I'm not sure we have hit a price bottom, but with record affordability, near record low interest rates, and HUD reports showing momentum in new housing sales, this may be the best opportunity in decades to buy a home that will prove to be a good investment.

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Blair Kuhnen, VP/GM NewHomesource.com

Housing Opportunity Index - Is it time to buy?

Is it the right time to buy a home? Being on my 5th home, I am sincerely jealous of the youngsters considering their first home. Housing affordability was a huge issue in '06 & '07. It seems every market is hitting a high in affordability. Wells Fargo and the National Association of Home Builders (NAHB) developed the Housing Opportunity Index (HOI) 18 years ago. I measures affordability as the percentage of homes sold that families earning the median income in a market can afford to buy.

In 1Q09, the HOI has hit a record level of affordability and for first time home buyers, the government is throwing in another $8,000 in tax incentives. Oh, to be young. It's been a tough market for all home sellers, but none more so than home builders. Bad news for some, but good news for you. It means you can buy a new home with all the energy and warranty advantages of a new home without the premium normally going into new housing.

Let's look at some markets and just how the affordability pendulum swings. Also, be sure to check out the home builder deals and incentives on New Home Source. Let's look at 3 markets: Atlanta, Houston, and bustling Riverside, CA.

• In Atlanta, always a great market for home buyers, in 3Q07 affordability dropped to under 64%. Now almost 83% of homes sold in Atlanta are affordable for the median income family. Check out some of the new home values in Atlanta.
• Next, there's Houston where affordability in 3Q07 dropped to 47.4% and in 1Q09 it is back up to almost 72%. Again, the Houston builders are putting it all on sale.
• Finally, at the height of the housing boom, less than 7% of the homes sold in Riverside were affordable for families earning the median income. Now, in the 1Q09, 72.6% of the homes are affordable.

...Wait. Riverside, CA is more affordable than Houston, TX? It's not a misprint. Just check out the new home bargains in Riverside. Not only that, but the state of California will kick in $10,000 on top of the $8,000 government first time buyer tax incentive.

If you need a home, now is a once in a lifetime opportunity to make the most of an incredible buyers market. Will it last? That government incentive? You must close by November 30th to get it.

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Blair Kuhnen

Don't Kiss the Pig, Even if it's Wearing Lipstick

If you spend any time online or watching television, you won't have to wait very long before someone says, "It's a buyer's market!" Housing has reached a historical level of affordability. First time home-buyers can take advantage of a huge $8,000 tax credit. And many realtors and home builders are desperate to get rid of their current inventory.

There's also the lure of buying one of the many foreclosed homes on the market. For a very cut-rate price, you can own a home. But don't be fooled by the lower-than-average purchase price. There could be hidden costs you haven't planned for.

I recently met with Chad Bria, West Coast Regional Sales Representative for Builder Homesite (www.builderhomesite.com), to discuss some of the issues related to buying foreclosed homes.

New Home Source: Chad, we've heard a lot of talk in the new about how inexpensive it is to buy a home nowadays, especially foreclosed homes. What's the risk with buying a foreclosure?

Chad Bria: The risk is that the seller doesn't really know anything about the house. Most foreclosures are sold at auction, with no opportunity to walk through the home; just exterior drive-by visuals. This tells you nothing about the plumbing.

NHS: Sure. But when you buy a foreclosure, you're often buying from a bank. Isn't there some sort of guaranteee?

CB: Since no one at the bank lived in the house, they probably don't know how old the roof is, if the basement leaks, if the furnace works, etc. When you buy a foreclosure, you are buying it as-is. No warranty.

NHS: What are some of the problems you've heard about with foreclosures?

CB: When a home sits empty for a while, it gets a little funky. Mold grows, rodents and insects move in, and vandals sometimes hit the house.

NHS: Well, these could be problems with other used homes on the market. How is a foreclosure any worse than any other home for sale on the market?

CB: Think of the mentality of someone being forced out of their home and what they might do to "get revenge" on the bank. Be prepared for missing or soiled floors, no appliances, holes in the walls, broken windows, etc. ... A good friend of mine owns an HVAC company. He was hired by a property management company to replace several compressors on the outside of homes. Someone had cut the lines to the houses and taken the outdoor AC units. The bank has to replace those units and the Freon, but do you think the bank is going to spend the money for a high-efficiency unit on a foreclosed home?"

NHS: I recently saw a news story about a man who was living in a foreclosed home, and the laws actually seemed to protect his right to be there. Is this a big problem for potential purchasers of foreclosures?

CB: In most states, if the house is occupied, you will have to evict the current residents following the local laws. This means that even after you buy the house, the people who were foreclosed on could be living there.

NHS: Wow. That's insane! What can you do in situations like that?

CB: To prevent them from causing damage to the house, you may consider paying them to move out. After all, it is much easier to pay $1,000 for someone to move out than to replace all the broken windows.

NHS: Are there any other hidden costs to consider when buying a foreclosure?

CB: The closing costs for buying a foreclosure are usually all put onto the buyer, and sometimes you can be responsible for interest and taxes as of the date the contract is signed, rather than the date of settlement.

NHS: Well, these are all very good points to consider. Thanks for taking the time to talk to me today!

Summary: Even for the amazingly low prices we're seeing nowadays, which have made home ownership on the West Coast less expensive than renting for the first time in recent memory, foreclosures seem to be very high risk. Like all high-risk investments, you should measure your tolerance for risk before jumping in head-first. Even if the bank has invested in the appearance of the house, you should expect to encounter hidden costs and be ready to assume responsibility for paying for them when they arise.

A better option for you may be to invest in one of the many new homes for sale. Many home builders have incredible incentives on their inventory homes. While the purchase prices aren't as low as foreclosures, you get the added value of peace of mind, with fully warranties and modern construction.