Many homeowners show a reluctance toward refinancing, believing that some offers from banks may be “too good to be true.” But their suspicions may be costing them thousands of dollars in savings, according to a new study in the February Issue of The Review of Financial Studies from Columbia Business School researchers.
Fifty-one percent of 550,000 borrowers who were sent preapproval applications through the Home Affordable Refinance Program between November 2011 and March 2013 chose not to refinance their mortgages, even though there were no monetary costs for them to do so and they could have lowered their mortgage rate, the study showed. For those who did not apply, they may have missed out on nearly $9,000 in savings, according to the study.
Researchers Eric J. Johnson, Stephan Meier, and Olivier Toubia say that a separate survey of 4,000 homeowners showed banks’ motives consistently related to the probability of homeowners’ accepting a refinancing offer. Some financial institutions tried to help overcome some of borrowers’ hesitations, such as by offering $500 cash back rewards if the refinancing process took more than 30 days or by offering an immediate benefit for applying, like a gift card.
However, those interventions also failed to motivate borrowers to act.
“The findings highlight the important role of trust in financial decisions,” the authors note in the study.
Researchers say it could be that some homeowners may have ignored the offers in the mail. But “ignoring this one could be costly,” they note. “This failure to refinance is costly for society as well, since lower payments reduce defaults.”
Spacious areas can sometimes feel cold and unwelcoming. How can you make a large living room with high ceilings feel more inviting? Houzz, a home remodeling website resource, provides some of the following tips:
For a room with tall ceilings, incorporate tall plants. It’ll help fill in vertical height gaps while also drawing the eyes up to help accentuate the high ceilings.
Paint two-tone walls.
To make the ceiling feel lower and more intimate, be sure to use a different color of paint on the bottom half of the walls. Use wainscoting, or tape off a line and paint everything below it a different color.
Bring in an oversized ottoman.
Larger seating arrangements can feel empty if there is too much distance between the furnishings. To close the gap, bring in an upholstered ottoman. It’ll add more softness to the room than a traditional coffee table.
Use furniture to define zones.
Try using a daybed bench or chaise to split up a really large living space. You can then create two full seating areas and help create a flow between the zones. A console table can also help section off parts of a living room. Float a sofa in the middle of the room and then place a console table behind it.
Create an intimate nook.
In large living rooms, create a second seating area in an unfilled corner. For example, put a small table against a bare wall and place two chairs on each side of it. This could be a space for reading or an intimate conversation area.
Couples may be eager to find their perfect home. But house hunting can be stressful, and finding a property that both parties agree on can pose a challenge.
A common spat that many real estate pros see? Not being able to agree on where to live. Elizabeth Gigler, broker for John Greene Realty in Naperville, Ill., told realtor.com® in a 2018 article that she once had one partner who really desired a home in a prime location while the other partner wanted to focus solely on the mortgage payment. Touring homes and not being able to agree on the location can lead to a lot of disagreements, agents say.
Another common sticky point for couples is whether the house is perfect enough to make an offer on it. Couples sometimes have difficulty agreeing on whether they love the house enough to make an offer. “So they keep looking, while the other is thinking, ‘Haven’t we found it already?’” Nathan Garrett, a real estate professional in Louisville, Ky., told realtor.com®.
Other spats can arise while discussing how aggressive to be when making an offer on a home, and how much of the home needs to be remodeled.
But working with newlyweds or couples doesn’t have to end in a spat every time. To keep the peace, Jeff Fagan, president of the Orlando Regional REALTOR® Association, offers some of the following suggestions when working with couples:
Make a list and find a compromise.
Each should make a list of amenities they’d like to have in a house and later compare notes with the other, he says. “See what features you two have in common and use these as the foundation of your home search,” Fagan says. “From there, compromise on other features you’d like to have. Most importantly, remember that no house is worth a strain on your relationship.”
Determine the ideal house size.
“A common mistake that couples make when buying a home is that it’s too small or too big,” Fagan says. He encourages couples to ask themselves a few key questions, such as: Do we plan on having kids in the next five years (if you don’t have any already)? How often will we have guests? Will we adopt any pets? It’s important for the buyers to factor in the answers to these questions when determining the home’s fit.
Drive around the neighborhood together.
“No matter how great the house is, if it’s in an area that doesn’t work for both people, you may regret your purchase,” Fagan says. If the couple plans to have children while living in the home, they’ll want to carefully evaluate the school district. Also, they’ll want to tour the surrounding area to see if what they desire is nearby, such as restaurants, gyms, and access to public transportation. They’ll also want to carefully consider each other’s commute times from the home, too.
Nearly 60 percent of millennial singles say that homeownership makes a potential mate a lot more attractive, according to a new survey conducted by realtor.com®. Women were more likely than men to find homeownership attractive (48 percent versus 43 percent).
“Attractiveness is in the eye of the beholder, and this survey data suggests that many beholders find homeownership attractive, perhaps using it as a signal for financial savviness and success,” says Danielle Hale, realtor.com®’s chief economist. “Single millennials seem to find homeownership in a potential partner especially attractive, even if only one-quarter feels that it is important.”
Overall, 24 percent of 500 single respondents of all ages surveyed said they felt it was important for their partner to be a homeowner.
Homeowning folks are most likely to be found in the South and Midwest, the survey found. The greatest share of single male homeowners was found in Detroit, in which about 23 percent of all single males owned a home. Detroit was followed by St. Louis at 21.3 percent, Minneapolis at 21.3 percent, Cleveland at 21.2 percent, and Pittsburgh at 19.9 percent.
“These markets have a high volume of young people, and relatively low median listing prices,” realtor.com® notes in its study. For example, Detroit and St. Louis median list prices are $220,000 and $198,000, respectively.
Single women are one of the fastest-growing demographic segments in the housing market, according to realtor.com®. Homeowning females are likely to be found in Detroit, where 23 percent of single women own a home, followed by Baltimore (21 percent), Charlotte, N.C. (21 percent), Philadelphia (21 percent), and Minneapolis (21 percent).
“Strong job opportunities and growing economies that draw many young professionals to the areas are also helping keep them in these markets as homeowners,” realtor.com® notes in the study. “Affordable home prices have also helped singles achieve homeownership in these markets.”
Cooling inflation and slower global economic growth prompted mortgage rates to drift down to the lowest levels in a year, Freddie Mac reports.
“While housing activity has clearly softened over the last nine months and the lingering effects of higher rates from last year are still being felt, lower mortgage rates and a strong job market should rekindle demand for the spring home buying season,” says Sam Khater, Freddie Mac’s chief economist.
Freddie Mac reports the following national averages with mortgages for the week ending Feb. 14:
30-year fixed-rate mortgages: averaged 4.37 percent, with an average 0.4 point, dropping from last week’s 4.41 percent average. A year ago, 30-year rates averaged 4.38 percent.
15-year fixed-rate mortgages: averaged 3.81 percent, with an average 0.4 point, falling from last week’s 3.84 percent average. A year ago, 15-year rates averaged 3.84 percent.
5-year hybrid adjustable-rate mortgages: averaged 3.88 percent, with an average 0.3 point, falling from last week’s 3.91 percent average. A year ago, 5-year ARMs averaged 3.63 percent.
While wallpaper is once again an attractive decorating trend for homeowners looking for textures and accents, it’s not for everyone. Designer Jessica Lagrange of Jessica Lagrange Interiors in Chicago works primarily with luxury clients who love wallpaper. Here’s what she advises about the “stay or strip” decision before listing a home.
1. The clash test. Some wall coverings are neutral, such as those with small patterns, intriguing textures in soft hues, or subtle metallic finishes. These are assets if they’re chosen in conservative or traditional colors, Lagrange says. The litmus test is how severely the print clashes with a range of furnishings and artworks.
2. An education campaign.There are wallpaper treatments that are extraordinary, such as some scenic wallpapers that cost thousands of dollars. Listing agents should have a strategy in place to educate buyers and other agents who aren’t familiar with wallpaper. If buyers aren’t interested, sometimes wallpaper can be removed and reused by the seller, Lagrange says.
3. Be willing to part with the paper.Big-personality wallpapers can be exciting in small doses, such as accent walls. But not everyone will agree. A seller should be ready to remove wallpaper if a buyer isn’t wild about it.
4. Get real.If a paper looks worn, dirty, or ripped and can’t be repaired, then the sellers need to remove it rather than having it become an eyesore during showings—no matter how much they love it, she says.
Home shoppers will likely face less competition in their offers, and that may allow them more time during their house hunt.
A new report from Redfin shows that only 13 percent of offers written by agents on behalf of their customers faced a bidding war last month—down significantly from 53 percent a year ago.
“Buyers have heard the market has slowed, so now they’re trying to get all of their ‘wants,’ not just their ‘needs,’ ” says Kalena Masching, a Redfin real estate pro in Palo Alto, Calif. “They’re waiting until they find a home they can check more boxes—for instance, three bedrooms instead of two or a higher rated school. In general, they are being more judicious as they think through their purchase. Meanwhile, many sellers have not yet recognized that the market has shifted.”
The number of homes for sale has been slightly increasing in several markets, which has left fewer home buyers competing for each home. In December, the number of homes for sale had grown by 5 percent over a year ago.
Several West Coast markets continue to be among the most competitive, but many are seeing fewer bidding wars compared to a year ago. Portland, Ore.; Denver; and San Diego each saw less than one out of five offers face a bidding war, down from more than half of offers a year earlier, Redfin reports. San Francisco, Los Angeles, and Seattle posted the biggest year-over-year percentage drops in bidding wars.
Meanwhile, the least competitive housing markets in January that overall saw the fewest bidding wars were Miami (3 percent), Dallas (6 percent), and Houston (6 percent).
As the threat of natural disasters increases—from hurricanes in the Gulf to wildfires in California—the real estate industry has learned that many homeowners in hazardous areas don’t have insurance policies that will fully cover the cost to rebuild. Such financial burdens add to affected homeowners’ anxiety, while also forcing insurance carriers to re-evaluate the accuracy of their coverage.
Homeowners who are underinsured may be more likely to walk away from their mortgages and abandon their properties. CoreLogic Chief Economist Frank Nothaft says that was a prominent trend in the aftermath of natural disasters in 2018. Affected areas have seen a spike in delinquency rates, while other parts of the country are seeing a decline, he notes.
But many homeowners may mistakenly believe that their insurance payouts should equal the market value of their homes. “Many homeowners assume the cost to rebuild a property should be equal to what they paid for the property,” CoreLogic notes. “However, insurers determine reconstruction cost values (RCVs) using sophisticated residential estimating tools that deliver RCVs at today’s prices. Reconstruction cost value is the cost to replace or rebuild a home to original or like standards at current material and labor costs within a certain geographical area. Meanwhile, a home’s market value is the price a consumer is willing to pay for the home.”
Reconstruction cost values average nearly 12 percent more than new construction costs, according to research from CoreLogic. To be properly covered, a home should be insured for the amount it would cost to rebuild at current prices for building materials and labor costs, CoreLogic notes. Read a Q&A on common questions homeowners have about insurance coverage at CoreLogic’s Insights blog.
After inventory and affordability challenges in 2018, prospective home buyers may have better chances of scoring a property this year. Affordability will remain an issue in some high-priced markets, says realtor.com® Chief Economist Danielle Hale, but overall, the national market is looking brighter for buyers who have stayed on the sidelines. Here’s why.
More homes are for sale. For the last few years, a limited number of listings has given buyers fewer choices. But housing experts predict more robust inventory this year. “For buyers, there is going to be more inventory, so that’s a bright spot,” Hale says. “The downside of that bright spot is it might not be in their price range.” The supply of homes for sale under $300,000 may not grow significantly, but they’re also not decreasing, she adds.
Home price growth is slowing. Home prices will still rise but at a much slower pace than the last few years. Hale predicts a 2.2 percent increase in home prices this year, down from last year’s nearly 5 percent growth. “We do still anticipate rising home prices, particularly for below-median-priced homes, so buyers in that price range may have some incentive to buy sooner rather than later,” Hale says. On the flip side, “as rising costs raise the bar to homeownership, some would-be buyers will be knocked out of the market. [That means] remaining buyers may have less competition to contend with than they saw in 2018.”
Mortgage rates are lower. The 30-year fixed-rate mortgage has backed away from the 5 percent mark, decreasing early this year. That means lower borrowing costs for buyers. The 30-year fixed-rate mortgage averaged 4.41 percent last week. “That’s definitely a huge opportunity for buyers because it drastically improves affordability,” Hale says. “And I think that if these low rates persist for a little while, then we’ll actually see stronger sales than we originally forecast.”
An explicit federal guarantee of financing for 30-year fixed-rate conventional mortgages must be part of any effort to reform or replace Fannie Mae and Freddie Mac, lawmakers and real estate leaders said Thursday at a policy forum hosted by the National Association of REALTORS®. “We all want to keep the 30-year fixed-rate mortgage,” Rep. Sean Duffy (R-Wis.) told hundreds of REALTORS®, real estate industry leaders, and policy professionals at NAR’s forum on housing finance reform. “We want a government backstop. We’re not getting rid of the federal backstop.”
At NAR’s housing finance reform forum Thursday, Rep. Sean Duffy (R-Wis.) said he supports protecting federal financing for 30-year fixed-rate mortgages.
Preserving the federal guarantee is one of NAR’s priorities as lawmakers consider what to do about the two secondary mortgage companies, which were put under conservatorship after the housing meltdown. Fannie and Freddie are now making money again.
NAR released its own plan for reforming the companies at the forum. The proposal envisions reforming Fannie Mae and Freddie Mac into a federally chartered private utility. The utility would have a mission-oriented board and enhanced regulator, use the two companies’ common securitization platform, and maintain the explicit federal guarantee for catastrophic risks while having private shareholders in the utility take the first-place risk.
Robert Broeksmit, president and CEO of the Mortgage Bankers Association, who spoke on a panel of real estate experts, agreed with NAR and other groups about the importance of preserving the federal guarantee. He said legislation released in the House Financial Services Committee provides a good starting point for reform because it shows the guarantee can attract bipartisan support. “With the explicit guarantee, it gives license to successors [on the committee] to move with that part solved,” said Broeksmit.
Industry groups raised concerns with one proposal that has been floated in Washington, which would recapitalize Fannie Mae and Freddie Mac and then release them to package mortgage-backed securities to investors without a federal guarantee. “We need to get past recap and release,” said NAR President-elect Vince Malta. “We need to maintain the $5 trillion [Fannie-Freddie] footprint and work toward meaningful reform.”
The two most recent chairs of the House Financial Services Committee, Jeb Hensarling (R-Texas) and Barney Frank (D-Mass.), both of whom are now retired from Congress, also agreed the federal guarantee should be part of any long-term solution. “There’s a potential grand bargain to be had,” said Hensarling.
At the forum, Timothy Pataki, special assistant to President Donald Trump for the Office of Public Liaison, said reform of the mortgage system is a priority of the administration. “The White House expects to announce a comprehensive reform proposal shortly,” he said.
