Thinking of selling? Here are the main threats to your home’s value

Friday, May 31st, 2013

There are many factors that could potentially reduce the value of your home. According to a recent article on MSN Money by Leah Culler, here are 8 potential deal breakers:

1. Location

Threat to value: Could be high – in some cases, 50% or more

What are the three most important factors in determining a home’s value? You guessed it: location, location and location. Although you likely considered location when you bought or built your home, something may have changed since then: rezoning, an increase in crime or a new city dump. So what can you do? Well, that depends on what about your location is bringing down the value. If you have a view of the city dump, for instance, you can plant some privacy hedges to make it less of an issue. Play up your home’s strengths; make sure every interior and exterior detail is perfect and be patient.

2. Lack of updates

Threat to value: Low to medium; usually, at least 10%

When there’s an oversupply of homes, buyers can be picky — and they definitely are. Rather than seeing the potential in an outdated kitchen and bathroom, a buyer will just move on to another home that won’t require as much work and vision. Granite countertops, new appliances, and a modern kitchen and bathroom, will all help to increase value. For between $5,000 and $8,000, you can install those granite countertops, update the light fixtures and add fresh paint and carpet. You’ll likely get a return of $15,000 to $20,000 when it is time to sell.

3. Bad floor plan

Threat to value: Medium to high; up to 25%

Appraisers consider odd floor plans when appraising homes. Without easy access to upstairs and an open layout, appraisers classify this as a functional problem which can reduce an appraised value by as much as 25 per cent compared with similarly sized homes.

4. Major systems and structures

Threat to value: Medium to high; up to 20%

A buyer wants to be able to walk in and say, ‘I could move right in’. Major system and structure issues kill potential deals in high-end neighbourhoods. Have an inspection done before you list your house and fix the major things. A roof that needs to be replaced could knock 15 per cent off the value. A heating and air-conditioning system that needs repairs could cut the value by as much as 20 per cent, and an electrical-system problem is probably somewhere between eight per cent and 10 per cent.

5. No garage

Threat to value: Varies; usually about $5,000

A garage definitely adds value to a home, and the key is to have the right-size garage for the home and the neighbourhood. If you have a one-car garage in a 1,200-square-foot home in a starter neighbourhood, there’s a big premium for that, but if you have a one-car garage in a half-million-dollar home, that’s a functional problem. The added value for a garage varies greatly by neighbourhood, but a good rule of thumb is $5,000 per stall.

6. No fence

Threat to value: Low; 5% to 10%

Many potential buyers are looking for a home with a fence because they have pets or want their children to be able to play in the yard safely. When you look at standard appraisal forms, there is a premium paid for fences. Porches and decks also add value to homes because people like outdoor space.

7. Allergens

Threat to value: Low to medium; up to 15%

A little mould under a sink could potentially kill contracts. Even if buyers could easily get rid of it, sometimes they just back out. If people have an allergy, they’re going to run. Possible problems also include cigarette smoke and pet dander. No matter how many times you clean your home, you can never really get rid of Fido.

8. Fit and polish

Threat to value: Low; 5% to 10%

How’s your curb appeal? Is your lawn mowed? Is there chipped or peeling paint on the outside of your home? This is a sure way to negatively affect the value of a home and turn a buyer off. Buyers wonder if sellers can’t take care of simple items like peeling paint, what will the rest of the house look like?

What about the inside of your home? Small things like a stain in the bathtub or a hole in the wall can stand out to buyers. These repairs may be inexpensive, but they can make all the difference when it’s time to sell. Make sure you’ve got good paint and carpet. Whatever you spend there is usually a good investment.

US home price rise continues to pick up speed

Wednesday, May 1st, 2013

Good news for our cousins south of the border as the pace of home price increases continued to accelerate in February, according to a reading yesterday that showed the biggest gain since near the height of the housing bubble.

The S&P Case-Shiller index of home prices in 20 major markets posted a 9.3% rise over the last 12 months. That’s up from the 8.1% rise in January. It was the biggest 12-month gain in the index since May 2006, which was just one month after the index showed record-high home prices.

The index showed a 12-month decline in prices almost every month over a five-year period through May 2012. But every month since then has shown a gain in home prices, and each month’s gain has been stronger than the one that came before.

“Despite some recent mixed economic reports for March, housing continues to be one of the brighter spots in the economy,” said David Blitzer, chairman of the index committee at S&P Dow Jones Indices.

Stan Humphries, chief economist for home price tracker Zillow, said there are signs in the market that the pace of increase started to slow in March.

“Regardless what data you look at, home values are clearly rising at an unsustainable pace,” he said. He said the increases in the index need to be taken with a grain of salt, being distorted by the shift in transactions to private home sales rather than the foreclosure sales that had been dominating the market.

The housing recovery has been driven by a number of factors, including near record-low mortgage rates, a drop in foreclosures and reduced unemployment, all of which have helped lift both new-home sales as well as sales of previously owned homes. The rising home prices has helped bring back some buyers who had been reluctant to buy while prices were falling.

Mike Larson, real estate analyst at Weiss Research, said he’s concerned that much of the increase is being driven by investors flooding into some markets to buy homes in order to rent them out, outbidding the potential homeowners who want to live in a home.

“Prices are not at bubblicious levels, but you’re talking about a trend that can be destabilizing,” he said.

Mark Vitner, senior economist with Wells Fargo Securities, said part of the reason for the sharp rise in prices is the comparison to depressed prices a year earlier. He said comparisons will become more difficult later this year. and the pace of increase should slow.

Home price increases boost the overall economy. Besides the jobs created by a pick-up in construction and home sales, rising prices mean fewer homeowners are underwater on their mortgages, owing more than the home is worth. That allows more homeowners to refinance, saving money they can spend on other things.

Source: Chris Isidore at CNN Money

Will Canadian home prices have the same correction as the US?

Friday, February 3rd, 2012

In few corners of the world would a car park squeezed between two arms of an elevated highway be seen as prime real estate. In Toronto, however, a 75-storey condominium is planned for such an awkward site, near the waterfront. The car park next door will become a pair of 70-storey towers too. In total, 173 sky-scrapers are being built in Toronto, the most in North America. New York is second with 96.

When the United States saw a vast housing bubble inflate and burst during the 2000s, many Canadians felt smug about the purported prudence of their financial and property markets. During the crash, Canadian house prices fell by just 8%, compared with more than 30% in America. They hit new record highs by 2010. “Canada was not a part of the problem,” Stephen Harper, the prime minister, boasted in 2010.

Today the consensus is growing on Bay Street, Toronto’s answer to Wall Street, that Mr Harper may have to eat his words. In response to America’s slow economic recovery and uncertainty in Europe, the Bank of Canada has kept interest rates at record lows. Five-year fixed-rate mortgages now charge interest of just 2.99%. In response, Canadians have sought ever-bigger loans for ever-costlier homes. The country’s house prices have doubled since 2002.

Speculators are pouring into the property markets in Toronto and Vancouver. “We have foreign investors who are purchasing two, three, four, five properties,” says Michael Thompson, who heads Toronto’s economic-development committee. Last month a modest Toronto home put on the market for C$380,000 ($381,500) sold for C$570,000, following a bidding war among 31 prospective buyers. According to Demographia, a consultancy, Vancouver’s ratio of home prices to incomes is the highest in the English-speaking world.

Bankers are becoming alarmed. Mark Carney, the governor of the central bank, has been warning for years that Canadians are consuming beyond their means. The bosses of banks with big mortgage businesses, including CIBC, Royal Bank of Canada and the Bank of Montreal, have all said the housing market is at or near its peak. Canada’s ratio of household debt to disposable income has risen by 40% in the past decade, recently surpassing America’s (see chart). And its ratio of house prices to income is now 30% above its historical average—less than, say, Ireland’s excesses (which reached 70%), but high enough to expect a drop. A recent report from Bank of America said Canada was “showing many of the signs of a classic bubble”.

The consequences of such a bubble bursting are hard to predict. On the one hand, high demand for Canada’s commodity exports could cushion the blow from a housing bust. And since banks have recourse to all of a borrower’s assets, and Canadian lending standards are stricter than America’s were, a decline in house prices would probably not wreck the banks as it did in the United States.

However, the Canadian economy is still dependent on the consumer. Fears about the global economy have slowed business investment, and all levels of government are bent on austerity. The Conservative government’s next budget is expected to put forward a plan to close the federal deficit, now 2% of GDP, by 2015—modest austerity compared to Europe’s, but still a drag on the economy. Few new jobs are being created. Assuming there is no setback in Europe’s debt crunch, slowdown in America or drop in commodity prices, GDP is forecast to grow by a meagre 2% this year. If consumers start feeling less well off, Canada could slip back into recession.

The inevitable landing will probably be soft. Increases in house prices and sales volumes are slowing, and the 2015 Pan American Games in Toronto should prop up builders. “The national housing market is more like a balloon than a bubble,” says a report by the Bank of Montreal. “While bubbles always burst, a balloon often deflates slowly in the absence of a ‘pin’.”

Moreover, the government is trying to cool the market. The banking regulator is increasing its scrutiny of housing in response to concerns about speculators. The Canada Mortgage and Housing Corporation, a government mortgage-insurance agency, says it will have to start reducing its new coverage because of legal limits. And the finance ministry has cut the maximum term of publicly insured mortgages from 35 years to 30. Some bank managers are calling for it to be reduced to 25, the historical norm. Canada’s reputation for financial sobriety is not entirely unwarranted.

However, the state has refused to use its most powerful tool. To protect business investment, the central bank has made clear that it plans to keep interest rates low. As long as money stays cheap, the balloon could get bigger—perhaps big enough to become a fully fledged bubble after all.

Source: The Economist

Canadian snowbirds still flocking to US home sales

Thursday, December 29th, 2011

Foreign ownership in American real estate sits at about eight per cent – but that percentage is worth $82 billion US, says the National Association of Realtors.

Homes in many parts of the United States are now worth what they were nearly 10 years ago in 2002, says a report from the association – and it’s this decline that is attracting foreigners, mostly Canadian homebuyers, to snap up a seasonal home at dirt-cheap prices.

From a seller standpoint, the market is “pretty bleak,” says Tom Burk, an associate broker with Sotheby’s Realty International who has a long career of selling real estate on both sides of the 49th parallel. “Given all the bad economic news in Europe and the near political paralysis in the U.S., markets there are struggling to show any kind of consumer confidence.”

In cities where investor interest is high “like Phoenix, Palm Springs or Las Vegas, there is optimism – but in most cities, it’s pretty bleak,” says Burk.

A survey by U.S.-based Credit Sesame of where foreigners are buying, what they are purchasing and how much they are paying shows that the largest group comes from Canada, with Asians and Europeans second and third.

Arizona is the fourth most popular destination for these buyers, trailing Florida, Texas and California.

The largest percentage are buying detached single-family homes for use as a primary residence – and they are paying less than $100,000 each.

Recent reports have claimed that Canadians are the top-ranked outof-state buyers of homes in Arizona, which is still under siege by the flagging economy.

The average Arizona home now sells for about half of what it would have five years ago, says the Federal Housing Finance Agency in the U.S.

The price dropped another 4.6 per cent from the first to second quarter of this year – driving the decline to nearly 15 per cent compared to the same period last year.

The housing market likely won’t turn around until the fundamentals improve, said Marshall Vest, an economist at the Eller College of Management at the University of Arizona in an interview with the Arizona Republic.

But that won’t start until the excess of available homes is absorbed, he said.

“We have enough vacant houses in Arizona to accommodate an entire decade worth of population growth – and that’s if the population were growing,” said Vest.

The recession has changed the way people look at real estate, says Burk.

“It has affected people’s ideas about timing, but it has not affected the basic belief that buying a home and raising a family in that home is fundamental to American values, in many cases,” he says.

Burk’s views are shared by Frank Anton, CEO of the national research firm of Hanley Wood in the U.S.

“We thought people would be soured after watching home values fall, but instead we found the typical American still places high value on home ownership,” says Anton. “We found this holds across all demographic groups and across the country, even in hard-hit places like Arizona and Nevada.”

Credit Suisse Group surveys real estate professionals in several cities in the United States on a monthly basis.

The global financial services company uses 50 as the benchmark for each of nine questions. Above 50 indicates a positive trend, while below 50 means a negative one.

For Phoenix, the report says home prices held steady for October (50 points versus 40 in September), listings remained high (76 points), and buyer traffic inched up to 40 points.

Down the road in Tucson, buyer traffic jumped to 43 points from 27, while prices totalled 43 points (an improvement from 27).

“The economy is poor and unemployment is too high. Nobody wants to buy in this type of environment,” says one realtor.

Las Vegas is also being hit hard by the continuing economic chaos.

“Traffic remains steady on interest from deal-seeking buyers,” says the Credit Suisse report.

But prices remained under pressure with an index of 44, down from a previous 48, while listings were high at an index of 59.

“Low prices and interest rates continue to spur inquiries and activity,” says a Vegas realtor in the survey. “Cash buyers are really driving sales.”

In San Diego, buyer traffic remained very weak with an index of 15, while house prices sat at 25.

“The constant negative news is affecting buyers’ confidence and there is a lot of uncertainty about a potential double-dip (a return of inflation),” says a realtor.

Meanwhile, traffic levels in the San Antonio, Texas, market left a lot to be desired – falling to an index of 14 – while the price index sat at 36.

“Many sellers would like to take advantage of the low interest rates, but we need the buyers to feel confident to keep the ball rolling,” says one real estate professional.

In Miami, Fla., things were looking up, with traffic improving to an index of 39 while priced edged up to 48.

“Cash buyers, both domestic and foreign, are controlling the market,” says a realtor in the Miami area.

Meanwhile, Portland, Ore., which sees buyers from B.C., has seen a strong jump in traffic – almost doubling to an index rating of 25, while prices held steady at 19 points.

Traffic is on the increase, says Debbie Tebbs, broker/ owner of Cascade Sotheby’s International Realty.

“They are doing so because they believe we are at the bottom,” she says.

“There has been a price correction of up to 60 per cent in some areas.”

Source: Marty Hope, Calgary Herald

Why the US housing market crash didn’t happen in Canada

Monday, October 24th, 2011

In a report earlier this year, Royal Bank of Canada chief economist Craig Wright suggested home ownership for a growing number of Canadians has become an impossible dream. That’s certainly true in Vancouver, where the affordability index is at record highs, with the average home price at nearly 10 times the median income.

But perhaps ownership has been oversold as an aspirational goal. As thousands of Americans have discovered, sometimes the dream becomes a nightmare.

In the United States, home ownership wasn’t just a dream, it was held up as an inalienable right. Washington pressured financial institutions to lend money to almost anyone who asked, giving rise to the NINJA mortgage (no income, no job, no assets).

Because mortgage interest was (and still is) tax deductible, homeowners did not bear the full burden of borrowing. Financial institutions turned to the wizards of Wall Street to devise derivatives that might mitigate the heightened risk.

The U.S. government had already sanctioned mortgage-based securities, having set up the Government National Mortgage Association (Ginnie Mae) in 1968 and the Federal Home Loan Mortgage Corp. (Freddie Mac) in 1970 to expand the secondary market for mortgages.

Inevitably, homeowners without the means to repay their debts defaulted on their mortgages and the derivatives based on them, including mortgage-backed securities and collateralized debt obligations, became worthless. Not knowing the extent of exposure to toxic debt, financial institutions became reluctant to lend to each other.

The result was a credit crisis that plunged much of the world into recession.

The housing crash that crippled the U.S. didn’t happen in Canada for several reasons. For a start, more prudent lending practices prevented the emergence of a significant subprime mortgage market. Canada’s regulatory regime acted as a rudder that kept the financial services industry on an even keel. And besides the capital gains exemption on the sale of a principal residence, there is no particular tax advantage in owning a home in Canada.

Measures mistakenly introduced to loosen mortgage lending rules — such as interest-only loans and 40-year amortizations — were quickly reversed, forestalling a flood of overly leveraged households.

Source: Harvey Enchin, Vancouver Sun

US foreclosures declining slightly

Thursday, June 10th, 2010

Slightly encouraging news from our neighbours south of the border. May showed that the number of foreclosures filed had decreased by 3 per cent compared to April’s figures.

Topping the list for the 41st month in a row is Nevada where one in every 79 houses received a foreclosure filing, followed by Arizona (one in every 169 households), Florida (one/174), California (one/186), Michigan, Georgia, Idaho, Illinois, Utah and Maryland.

According to the U.S. Foreclosure Market Report released by California-based RealtyTrac, a total of 322,920 houses received filing in May, meaning that one in every 400 houses received an auction notice. Compared to April, where a total of 333,837 households received auction notice.

Though the filings have exceeded 300,000 for the 15th straight month, the foreclosure rate has receded over the past few months.

“The numbers in May continued and confirmed the trends we noticed in April: overall foreclosure activity is leveling off while lenders work through the backlog of distressed properties that have built up over the past 20 months,” stated James J. Saccacio, chief executive officer of RealtyTrac.

Despite the overall unemployment rate declining, from 9.9 per cent in April to 9.7 per cent in May, the fall was mainly through so-called “discouraged workers” leaving the job market. And while the headline figure of a net 431,000 jobs created during May looks like solid growth, the vast bulk of those jobs came from temporary hiring related to the US census, which alone added 411,000 jobs.

We are yet to see a longterm US employment recovery which will have the obvious positive repercussions on the US housing market. At the moment, it’s still very weak but oak trees do grow from acorns.

For sale: The $100 house

Tuesday, February 2nd, 2010

Written by Toby Barlow last year for the New York Times – an interesting observation of the state of the real estate market in Detroit and how people are snapping up derelict homes for $100. Remember though, that you get what you pay for, and before you charter a flight to Wayne County Airport, perhaps a little research into Detriot’s inner city neighbourhoods wouldn’t go amiss. For some though, one man’s trash is another man’s treasure.

$100 house

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