MONEY buying a home

How to Beat Newly Hot Real Estate Markets

Buying in a hot market can be tough. These tips can help beat the competition.

How much house will $2 million get you in the United States these days?

You could buy 25 pretty nice four-bedroom, two-bath homes in Cleveland, Ohio. Or, you could get just one modest ranch house in Los Altos, California, the most expensive real estate market in the country, according to a new survey by Coldwell Banker.

But, then again, you would probably get beat out by an all-cash buyer offering a higher bid.

Competition is fierce in today’s emerging hot real estate markets because the inventory of available properties is still extremely low. In areas like Silicon Valley, though, the economy is humming and buyers have plenty of money.

Los Altos is in the middle of the action, surrounded by the corporate headquarters for Google, Facebook and dozens of other major tech companies, as are other California cities: Newport Beach, Saratoga, Redwood City and Los Gatos, the rest of the top five on Coldwell’s list.

As other markets heat up around the country, buyers can learn a few things from what’s happening in some of the hottest places.

NEW MATH

If there is one thing Silicon Valley’s techies know, it’s algorithms. You’re going to need one in today’s top markets to figure out how far above asking you need to bid.

Sumi Kim Hachmann, a 32-year-old researcher at Quora.com, snagged her three-bedroom, one-bath house in Menlo Park last year after six months of trying. Each time she found a house she liked, she crunched the square footage and comparable sales to figure out how much to bid, refining her math each time she lost out.

She liked a fixer-upper listed at $1.1 million, and was willing to bid $100,000 over asking. Her agent told her to double that, at least. She did, but the sellers countered. The house sold for $1.4 million to somebody else

“That was definitely discouraging,” Hachman says. “But it was a learning experience.”

Next time, she went in with a strong offer that amounted to $1,000 per square foot, and won. Now, a year later, she’s incredulous that houses in the neighborhood are going for double that.

While price is largely controlled by location and size, you need to add a premium to your offer if you need a mortgage, says Joe Brown, managing broker of a Coldwell branch in Los Altos. Bids being equal, sellers prefer all-cash because there is less risk. Price will still prevail, though, so a higher bid from a qualified buyer with a mortgage should win.

Another caveat: Keep contigencies out of the purchase agreement. Doing this is difficult for mortgage-seekers because banks typically require that the purchase price match the appraised value of the house. With prices going so far above asking, that can get tricky.

“You either ask them to put a lot more down or have them sign something that they will waive the appraisal contingency,” says Ducky Grabill, a founding agent of Sereno Group realty, who is based in Los Gatos.

Grabill also suggests having the lender call the listing agent and let them know they will guarantee the financing.

LOWER EXPECTATIONS

Another strategy is to buy below your price point, says Brown. If you have the resources for a $2 million house but cannot compete with stronger buyers, then aim for $1.5 million and turn it into the house you want.

This is a modification of the old “buy the worst house in the best neighborhood” adage. But you cannot just sit on this kind of property and hope it will appreciate; you’ve got to renovate.

That’s what Amy Bohutinsky, chief marketing officer of real estate site Zillow.com, did with her own purchase of a fixer-upper in the Seattle area two years ago.

“If you buy it with the intent of fixing it up, it can be an easier way” into a house than engaging in a bidding war, Bohutinsky says.

She also recommends expanding the boundaries of your search: considering for-sale-by-owner properties, preview listings like Zillow’s “Make Me Move” section and “coming attractions” on listing sites.

BE READY

It is not enough anymore to show up at an open house pre-qualified for a mortgage and with a letter that sells yourself. You may need to have an engineer or other inspector come along, says Sereno Group’s Grabill.

She had a client recently clinch a $2 million all-cash deal after his first viewing, but only because he was able to do his due diligence on the foundation issues immediately.

This buyer was one of those bidding down on a property. He was really in the market for more like $2.5 million, and will put the remainder of his budget into fixing it up.

“They are throwing so much more money at properties to get it. It’s a little crazy,” Grabill says.

MONEY buying a home

Homebuyers ‘Addicted’ to Online Listings—But Accuracy Is Still an Issue

141117_EM_homebuyers_1
Getty Images

Almost two-thirds of recent home buyers surveyed said they were "addicted" to online listings, but only 22% said they were always accurate.

A new study from Discover Home Loans confirms the extent to which technology has transformed the way people buy and sell houses. But it also shows the limits of using online real estate sites when shopping for a home.

According to the survey, which polled 1,003 recent homebuyers on how technology affected their experience, 83% used listings sites like Zillow and Trulia, more than any other online resource. But the majority of respondents weren’t always satisfied with what they found. Only 22% said online listings were always accurate. The results reinforce previous studies, which found a disparity between the accuracy of listings on third-party websites and those found on local Multiple Listing Services, the primary tool of real estate brokers. Those listings tend to be updated more quickly than consumer-facing sites.

Zillow and Trulia have previously responded to such studies, noting that their sites also offer special tools to educate buyers on neighborhoods and housing conditions, and include listings of for-sale-by-owner, premarket and new-construction homes that don’t show up in MLSs.

Alison Paoli, public relations manager with Zillow, noted that while she hadn’t seen the full research, “what’s more important to understand about a study like this is that there is no gold standard for [accuracy in] real estate listings.” She added that Zillow gives brokers, agents, and MLSs the option of sending their listings directly at no cost. “Accuracy is top priority for us,” Paoli.

Accuracy aside, the survey showed that buyers still love trolling listing websites. The vast majority of respondents said technology made them feel “smarter” and “more confident,” and almost half said it helped them save money. In fact, two thirds said looking at online property listings “reached the point of becoming addictive.”

T.J. Freeborn, senior manager of customer experience at Discover Home Loans, said the results show that buyers still need a combination of online information and local expertise. “I think technology is an incredibly useful tool in this marketplace, but Realtors have a very deep knowledge of neighborhoods and particular homes,” Freeborn said.

Discover’s data shows buyers tended to shun social media when looking for houses—a surprising result in a world where virtually all other activities are in some way connected to Facebook and Twitter. Only 25% of homebuyers collected ideas on social media, and just 29% used social media to consult friends. (Given how hot some real estate markets have become, perhaps their reluctance can be chalked up to justifiable paranoia about oversharing.)

That data could have implications for home sellers. At least for now, a social media presence is far less important than making sure your home is listed online.

Get answers to your home buying questions from MONEY101:
How Do I Shop for a House?
How Do I Choose the Right Real Estate Agent?
How Do I Negotiate the Best Price on a New Home?

 

MONEY Millennials

What Everyone Gets Wrong About Millennials and Home Buying

Millennials on porch in suburbia
Katherine Wolkoff—Trunk Archive

Conventional wisdom says that millennials are a new and different generation. But when it comes to housing, they're likely to be more conservative and traditional than their parents were.

If you’ve come across any stories mentioning millennials and home ownership, you’ve likely heard this refrain: Young people just aren’t very interested in buying a house. Instead, the story goes, they want to rent a cool apartment, live in a city, and walk to coffee shops. Forever.

This narrative was eloquently expressed in a recent New York Times article about a hip, 30-year-old, unmarried couple choosing to rent in a swanky Virginia high-rise. What made these millennials pick a rental apartment over a nest of their very own? The developer of the couple’s new home, Joshua Solomon, had his theories:

“That generation of folks has seen people really get hurt by homeownership,” said Mr. Solomon, president of the company, which is based in Waltham, Mass. “The petal has really fallen off the rose as it pertains to homeownership. People don’t want to be tied down to a mortgage they can’t get out of quickly.”

Sounds like a reasonable conclusion, right? Multi-unit construction is up, after all, and first-time home buyers are in historically short supply.

But if you dig a little deeper, both Solomon’s generalization and the “millennials don’t really want to own homes” trope turn out to be largely untrue. A number of surveys have shown that the vast majority of millennials would love to own a place of their own. Recent research from housing site Zillow, for example, found that adults age 22 to 34 are actually more eager to own a home than older Americans.

According to Zillow’s data, young married couples in which both partners work (represented by the orange line in the left graph below) currently own homes at a rate close to or above historical norms for their demographic. Even single employed millennials (the yellow line in the right graph) are slightly more likely to own a home than their counterparts in the ’70s, ’80s, and ’90s.

Zillow

So if young adults want homes more than previous generations, why is their homeownership rate at a historic low? The answer is that millennials are getting married later in life, and not having two income streams makes it much harder to scratch together a down payment.

From 1960 to 2011, Americans’ median age at the time of their first marriage increased by six years, to around 29 from 23 for men and 26 from 20 for women, according to Census data. Then came the financial crisis, which pushed marriage back even further by making financial stability—a marital prerequisite for many— a rarity among recent college graduates. According to one recent study from the University of Arizona, only about half of adults ages 23 to 26 and at least one year out of college have a full-time job.

As a result, the millennial generation’s overall home purchases are down—but they probably won’t be down forever. Zillow’s analysis shows that if millennials were marrying at the same pace as previous generations, their rate of homeownership would be 33%, four percentage points higher than now and roughly the same as in the 1990s. Once this generation begins to tie the knot, the evidence suggests, it’ll be buying homes at least as frequently as older Americans once did.

Old School Values

In fact, there’s some evidence that home ownership is more important to millennials than it is to Gen Xers or boomers. In a recent survey, forty-six percent of respondents ages 18 to 34 told Zillow they believe “owning a home is necessary to being a respected member of society,” and 65% said “owning a home is necessary to live The Good Life and The American Dream.” Both results were higher (in most cases, significantly higher) than older age groups.

America’s newest generation—post-millennials—are perhaps the most old-fashioned of all. A shocking 97% of teens age 13 to 17 believe they will one day own a home, and 82% say homeownership is the most important part of the American dream. If anything, buying a home seems to be getting more attractive, not less.

So millennials really want a home, but they still want a cool home, right? One that’s urban, and different, and close to a Blue Bottle Coffee? Maybe when they’re still young and single, but a large amount of evidence suggests that even today’s young adults look to the suburbs once children come along. Highly dense “core cities” like San Francisco and New York are attractive to millennials looking for fun and adventure, but they’re also extremely expensive to live in when dependents enter the picture.

Research suggests a negative correlation between big cities and child populations. City Journal found that between 2000 and 2010, the population of children 14 and younger fell by 500,000 in the country’s densest urban areas, including Los Angeles, Chicago, and New York. As children disappeared from cities, the nation’s 51 largest metro areas lost 15% of adults 25 to 34—the same age range when many begin to marry and start families. “While it’s not possible to determine where they went,” the Journal noted, “suburbs saw an average 14 percent gain in that population during the same period.”

Mollie Carmichael, principal at John Burns Real Estate Consulting, is already seeing millennials flee cities to more child-friendly environments. “We do find that the millennials want to be in urban areas, but usually when they’re not married and they’re renting” says Carmichael. “But the trigger is marriage, and then frankly they want more traditional areas and more traditional environments than even their parents. They want suburban; they want single-family detached; they want a yard.”

What about millennials’ much-reported fixation on urban-ness? There’s some truth to it, Carmichael acknowledges, but “urban to them means they want the ability to walk to the park and walk to the Starbucks. It’s more about accessibility, and that could be driving to those great places they want to go.”

In the end, America’s newest adult generation isn’t that different from the previous ones. Millennials may Instagram their new home instead of sending photos through the mail, but not much else has changed.

MONEY buying a home

7 Tips For Buying a Vacation Home

Beach house
Astronaut Images—Getty Images

You may be tempted to finally buy that vacation place now that the housing market has healed. Here's what to consider before you start house hunting.

Many Americans contemplating a vacation home abandoned that dream when the housing market collapsed. But now that home values have climbed month after month, with the median price up about 20% since its bottom nearly three years ago, you may once again be toying with the idea of that lakefront, ski or beach getaway place. About 13% of homes purchased last year were intended as vacation homes, up from 11% in 2012, according to the National Association of Realtors.

Yet you shouldn’t let the fact that the market has stabilized drive your buying decisions. Instead follow these seven steps to take to make sure a vacation home is right for you, and won’t turn out to be an expensive headache.

1. Choose the Location Carefully

This may sound obvious, but before you start shopping you need to be able to specify why exactly you want this second home. The answer should shape where you look. For example, 87% of vacation home purchasers in 2013 planned to use the property primarily to getaway with their families, according to the NAR. Thus the typical home purchased was an average 180 miles from the buyers’ primary residence.

If the main purpose is for you and your loved ones to gather together and enjoy the house as a family, you’ll need it to be in an area that is easily accessible for everyone, and that offers plenty of activities for different age groups. While you may think jumping on a flight to Florida isn’t a big deal, elderly grandparents or parents of small children may disagree.

Buyers who plan to rent the home to others- as 25% of purchasers do- may want to choose a location with numerous seasons of rental demand, so you aren’t limited to income only, say, three months of the year (likely when you want to use the home too). When you’re viewing the home as an investment property you’ll also care more about projected growth rates of the communities you’re considering, as well as the health of the local economy.

Related: 6 Amenities to Ensure Repeat Business in Your Vacation Rental

2. Rent Before You Purchase

Before you lock yourself in, rent a place (more than once is best) in the area you’re considering to be certain you’ll actually enjoy it. Stay for at least two weeks to make sure you don’t grow bored on extended stays.

Try to visit in different seasons to understand weather and crowd patterns. For example, you may realize that you hate needing to book a dinner reservation well in advance during the summer busy season, when you’re there to relax.

Or if you plan to eventually move to the home full-time, as one-third of buyers do, you may decide a house outside of town is actually too lonely and inconvenient. Only 32% of vacation homes purchased last year were in a small town or rural locale.

You’ll also learn what part of town you prefer. For example, in Orlando vacation homes are spread out throughout the city, but you may prefer the shops and restaurants in Kissimmee over Davenport.

3. Buy Under Your Budget

Don’t fall into the trap of purchasing a property that is a stretch to afford. Buying a house with too high of monthly carrying costs causes stress, and most people go on vacation to getaway from troubles. It also means that if you eventually decide you want to hire someone to manage the place, or care for the yard, there won’t be any wiggle room in your budget to afford it.

Keep in mind that you can always upgrade to a bigger house down the road.

4. Be Realistic About How Often You’ll Use It

My wife and I have three kids. When they were young we bought a vacation home near our house. We used it all the time. As the kids got older, though, we visited the house less and less. Weekend sports games, friends sleeping over, and church and school activities left too little time to get there.

Be realistic when you make assumptions about how often you’ll actually be able to use the place. You may be better off working out a rental agreement with an owner in the area to use his or her place two or three times a year- and forget about the place when you’re not there.

5. Understand the Tax Implications

Don’t assume you know what the tax consequences of owning that property will be, based on your experience with your primary residence. Second homes can be more complicated.

If you are going to rent out the property, you will need to pay income taxes on the rental income you receive. Your property taxes may also run higher than what you pay now, either because the tax rate in the vacation area is higher than where you live, or because its a second home and not a primary residence. For example, the taxes on second homes in Florida are usually much higher than for primary residences.

A qualified real estate agent should be able to provide details about taxes in the area, and possibly even tips on ways to save, such as buying just outside the city limits.

6. Make a Conservative Estimate of Rental Income

Most buyers tend to be overly optimistic about how often they’ll rent out the place. Talk to a local vacation rental agency about how many weeks of the year you can realistically expect demand. For example, even in a winter and summer destination such as Lake Tahoe you can’t expect to fill the place every month of the year.

You also need a realistic estimate of how much expenses will eat into that income. Presume repairs will cost about 1.5% of the value of the house. So for a $100,000 place budget for at least $1500 a year in repairs. Each year the tab might be higher or lower than the estimate, but this rule of thumb will give you some flexibility from year to year.

Similarly, find out ahead of time what your home insurance tab will run, since second homes are often in hurricane or flood areas and thus pricey to insure, and also may cost more simply because they are empty more often.

7. Don’t Get Caught Up in the Moment

If a friend, family member or another investor brings you an opportunity to buy a vacation home, or to acquire land with aspirations of building a grand home, don’t let yourself be easily persuaded. The proposal can sound romantic but quickly turn into a horror story. Sometimes people have alternative motives. Other times they haven’t actually done their homework to uncover that the so-called deal isn’t really a good one.

Related: How to Market Your Vacation Rental to Ensure Maximum Bookings

So slow down, take your time — and do your research. Move forward only after you have thoroughly run the numbers yourself. An opportunity that turns sour will eat up your money- as well as your precious vacation days.

 

More from BiggerPockets:

10 Things Only Personal Finance Nerds Would Understand

5 Tenant Characteristics Its Wise to Discriminate Against

5 Ways to Reduce Booking Cancellations On Your Vacation Home

 

Another version of this article originally appeared on BiggerPockets, the real estate investing social network. © 2014 BiggerPockets Inc.

MONEY retirement planning

Millennials Feel Guilty About This Common Financial Decision—But They Shouldn’t

Sad millennials leaning on desks
Paul Burns—Getty Images

Young adults aren't saving as much as they think they should for retirement. But paying off debts is just as important.

Millennials are pretty stressed out about their long-term finances, according to Bank of America’s latest Merrill Edge Report. Some 80% of millennials say they think about their future whenever they pay bills. Almost two-thirds contemplate their financial security while making daily purchases. And almost a third report that they often ponder their long-term finances even while showering.

What’s eating millennials? Student loan debt. Even the very affluent millennials surveyed by Bank of America feel held back by student debt—and these are 18-to-34 year-olds with $50,000 to $250,000 in assets, or $20,000 to $50,000 in assets and salaries over $50,000. Three-quarters of these financially successful Millennials say they are still paying off their college loans.

Among investors carrying student debt, 65% say they won’t ramp up their retirement savings until they’ve paid off all their loans. But with that choice comes a lot of guilt: 45% say they regret not investing more in 2014.

Contrary to popular wisdom, millennials are committed to investing for retirement. Bank of America found that the millennials surveyed were actually more focused on investing than their elders. More than half of millennials plan to invest more for retirement in 2015. But 73% of millennials define financial success as not having any debt—and by that measure, even relatively wealthy millennials are feeling uneasy.

Fear not, millennial investors. You’re doing just fine. First off, you’re saving more — and earlier — than your parents’ generation did. A recent Transamerica study found that 70% of millennials started saving for retirement at age 22, while the average Baby Boomer didn’t start until age 35. On average, millennials with 401(k)s are contributing 8% of their salaries, and 27% of millennials say they’ve increased their contribution amount in the past year. Even if you can only put away a small amount at first, you can expect to ramp up your savings rate during your peak earning years.

For now, here are your priorities:

Save enough to build up an emergency fund. You could be the biggest threat to your retirement savings. A recent Fidelity survey found that 44% of 20-somethings who change jobs pull money out of their 401(k)s. (That’s partly because some employers require former workers with low 401(k) balances to move their money.) Fidelity estimates that a 30-year-old who withdraws $16,000 from a 401(k) could lose $471 a month in retirement income—and that’s not even considering the taxes and penalties you’d owe for cashing out early. If you have to make the choice between saving and paying off debt, at least save enough to get through several months of unexpected unemployment without draining your retirement accounts.

Pay off any high-interest debt first. When you pay off debt, think of it this way: You’re making an investment with a guaranteed return. Over the long term, you might expect a 8% return in the stock market. But if you have a loan with an interest rate of 10%, you know for certain that you’ll earn 10% by paying it off early.

Save enough to get your employer’s full 401(k) match. The 401(k) match is another investment with a guaranteed return. Invest at least as much as you need to get the match—typically 6%—with the goal of increasing your savings rate once you’ve paid off the rest of your debt.

Related:

MONEY buying a home

When You’re Better Off Renting A Home Than Buying One

141017_REA_RentingOverBuying
Phoenix, Arizona. Dennis MacDonald—Alamy

Today it typically costs less to buy a place than rent one, but exceptions exist. Your situation may be one of them.

It remains cheaper to buy than rent in every one of the country’s 100 largest metro areas, according to new Trulia research. In fact, homeownership nationwide has actually become a sweeter deal, coming in on average 38% cheaper than renting today, compared with 35% one year ago, thanks to falling mortgage rates and rents rising faster than prices.

Just how much cheaper it is to buy than rent varies by area, coming in at 17% cheaper in Honolulu and 63% in Detroit (find the data for all 100 metro areas here). But those figures were calculated assuming the buyer used a traditional 30-year fixed rate mortgage with a 20% down payment. Yet there may be good reasons for financing a home purchase other ways, particularly if you’re a first-time buyer without savings or equity from another home. Or maybe you want to pay all cash in hopes of beating out other bidders in a competitive environment. Are you still better off in most cities buying than renting if you use these non-traditional payment options?

The Pros and Cons of Different Types of Mortgages

Let’s look at how the different payment options play out for a $250,000 home that the owner sells after seven years. To keep things simple, let’s start out ignoring closing costs, home price appreciation, tax benefits, and many other things we do account for when we add these scenarios to our full Rent Versus Buy model, below.

  1. A traditional 20% down, 30-year fixed-rate loan on a $250,000 home would carry a $990 monthly mortgage payment, including principal and interest. After seven years, the unpaid loan balance is $173,291, leaving equity of $76,709.
  2. All cash is just what it sounds like. You pay $250,000 upfront and that’s all equity at the end.
  3. For a 15-year fixed-rate loan, you still put 20% down. The average mortgage rate on a 15-year fixed-rate loan is almost a full point below that of the 30-year fixed rate. But the shorter term means a higher monthly payment of $1,428. The payoff is that the 15-year loan builds equity much faster: $130,507 after seven years.
  4. A 10% down payment loan with private mortgage insurance requires less money upfront. But the higher initial loan balance means a larger monthly payment plus a mortgage insurance premium of $133 per month. Furthermore, the lower down payment and higher loan balance leave equity of only $55,048 after seven years.
  5. A 3.5% Federal Housing Administration (FHA) loan calls for a down payment of only $8,750 but requires upfront and ongoing mortgage insurance premiums. The higher initial loan balance means equity of just $38,748 after seven years. That’s about half what you’d have with a traditional 20% down, 30-year loan.
Understanding the Financing Options
For a $250,000 home Traditional 20% down, 30-year fixed All cash 15-year fixed, 20% down 10% down, private mortgage insurance 3.5% down FHA
Down payment $50,000 $250,000 $50,000 $25,000 $8,750
Monthly payment (incl. mortgage insurance) $990 - $1,428 $1,247 $1,441
Equity at 7 years (no appreciation) $76,709 $250,000 $130,507 $55,048 $38,748
Note: Monthly payment is principal, interest, and mortgage insurance premium. Mortgage rates for the traditional 20% down 30-year fixed (4.30%), 15-year fixed (3.48%), and FHA (4.00%) loans are from the Mortgage Bankers Association for the week ending October 3. We use the same rate for a 10% down payment loan as the traditional 20% down payment rate, based on current rate quotes. Monthly payment includes mortgage insurance calculated for the first year of the loan. For FHA loans, the insurance premium falls over time but remains on the loan; the FHA upfront premium is rolled into the loan balance. For the 10% down loan, we assume insurance gets taken off when equity reaches 20%. All dollar amounts are rounded to the nearest dollar.

When deciding whether buying still beats renting with each of these financing options, the math gets complicated. For starters, the benefits of each option depend on how you would invest your money if you weren’t buying a home – that’s the “opportunity cost.” In addition, other factors, such as whether you itemize your tax deductions, also affect the relative benefits. Our Rent Versus Buy model factors all this in. So let’s see the results.

When Buying Is an Even Better Deal – And a Bad Idea

Remember that buying is 38% cheaper than renting nationally under our baseline model of a 20% down payment 30-year loan, tax deductions at 25%, and staying in the home seven years. Under all five of these non-traditional financing options, buying still beats renting. The gap is widest for the 15-year loan, where it’s 43% cheaper to buy. It’s narrowest for the 3.5% FHA loan, where buying is 25% cheaper.

mortgage type graphic

 

The 15-year loan ends up costing the least versus renting thanks to faster equity build-up and more of the mortgage payment going to principal rather than interest. Surprisingly, all-cash is a worse deal than a traditional 20% down, 30-year mortgage, although that hinges on our assumption about what you could earn if you didn’t tie up your money in an all-cash payment. (Geeks: we’re assuming a 3.5% nominal discount rate.) In addition, if you pay all cash, you lose the tax benefit of deducting mortgage interest. If you assume tax deductions aren’t itemized, there’s no tax benefit of getting a mortgage, which makes all-cash a better deal than a traditional 20% down, 30-year fixed rate mortgage.

The biggest shift is with the 3.5% down FHA loan, which makes buying only 25% cheaper than renting. In one of the 100 largest metros, Honolulu, buying with a 3.5% FHA loan is actually more expensive than renting. And, with this loan, buying beats renting only by 10% or less in San Francisco, New York, Los Angeles, and several other California metros.

Going further, it’s not hard to come up with realistic scenarios where buying costs more than renting in many local markets. For a millennial with little savings and no Bank of Mom and Dad, an FHA loan might be the only option. If our hypothetical twentysomething is not in a tax bracket that makes itemizing worthwhile and only stays put five years (those young people are restless), buying ends up costing more than renting in 27 of the 100 largest metros. Those 27 include not only pricey coastal markets, but also in markets like Phoenix, Las Vegas, and Colorado Springs. On the expensive coasts, it’s not even close. For instance, in this scenario, buying costs 30% more than renting in Orange County. Thus while an FHA loan might be within reach for many first-timers, in many costly parts of the country, it doesn’t make buying cheaper than renting. Our interactive map shows this for all the 100 largest metros:

 

blogpost map no 2

So, to buy or to rent? Falling mortgage rates and rising rents mean that buying looks even better versus renting than one year ago, especially in California. But buying is not for everyone. If you live in a market that’s a close call, and you plan to stay less than seven years, don’t itemize your tax deductions, or need an FHA loan, buying might not be the clear-cut winner, and could end up costing far more than renting.

 

To see the full post, including rent vs. buy figures for the 100 largest metros as well as methodology details, click here.

To read more from Jed Kolko of Trulia, click here.

Related:

MONEY 101: Should I rent or buy?

MONEY 101: What mortgage is right for me?

MONEY buying a home

Why Firemen Are More Likely to Own a Home than Economists

Firefighters
Many public service workers such as firemen own their homes. Michael Dwyer—Alamy

A new study shows which professions are most- and least- likely to be homeowners. The results may surprise you.

What do firemen, police officers, and farmers have in common? They’re all more likely to own homes today than economists, jewelers, and accountants.

These are the results from a newly released study, done by Ancestry.com, looking at the relationship between profession and home ownership today and over time. The website teamed up with the University of Minnesota Population Center to analyze Census data between 1900 and 2012, creating a century-spanning log to show how ownership changed over the decades.

Looking at the most recent 2012 data, the research found that 79% of policemen and detectives own a home, yet only 64% of economists do. Farmers (81%) and firemen (84%) are in the top ten professions most likely to own a house, ranked above jobs like accountants (76%), and far higher than members of the armed forces (33%). Nationwide, the data shows 64% of the population owns their home.

Another surprising finding: the stereotype of the starving artist isn’t necessarily reflected in the data—at least for some industries. It turns out 63% percent of artists and art teachers own homes, as well as 62% of musicians and music teachers, 63% of authors, and 57% of entertainers. It’s not all roses for the artistic class, though. Just 37% of actors and actresses own a house, and that number sinks to 23% for dancers and dance teachers.

Toddy Godfrey, a senior executive at Ancestry.com, points out that there are both high and lower income professions on the most-likely-to own list, suggesting there isn’t a direct relationship between high wages and ownership. Typically lucrative professions like optometry tend to own, but so do lower-paid trade and public service workers.

“You look at some of the jobs on the top of the list, and they’re clientele based, or teachers, or others who are community rooted,” says Godfrey. He speculates that professions most likely to own “have a long-term connection to the community they live in.” That reasoning may also explain why tradesmen tend to buy instead of rent. Godfrey guesses many of these workers are tied to regional manufacturing, and therefore are more likely to set down roots.

Another trend the data suggests is that temporary and highly mobile workers tend to avoid homeownership. That could explain why so few military service members own houses, as they can be redeployed elsewhere and may choose to move once their service ends.

Finally, Godfrey highlights the fact that while ownership took a hit in the bust, the majority of Americans own their home. That’s up from 32% in 1900, though most of the growth happened pre-1960. “Maybe it’s come down a point in the last few years, but it’s held pretty steady at two thirds,” says Godfrey.That trend has been pretty constant.”

Top 10 Professions for Home Ownership in 2012

1. Optometrists: 90%

2. Toolmakers and Die Makers/Setters: 88%

3. Dentists: 87%

4. Power Station Operators: 87%

5. Forgemen and Hammermen: 84%

6. Inspectors: 84%

7. Firemen: 84%

8. Locomotive Engineers: 84%

9. Airplane Pilots and Navigators: 83%

10. Farmers: 81%

Bottom 10 Professions for Home Ownership in 2012

1. Dancers and Dance Teachers: 23%

2. Motion Picture Projectionists: 27%

3. Waiters and Waitresses: 27%

4. Counter and Fountain Workers: 28%

5. Members of the Armed Forces: 33%

6. Service Workers (except private households): 34%

7. Bartenders: 35%

8. Housekeepers and Cleaners: 35%

9. Cashiers: 36%

10. Cooks (except private households): 36%

MONEY mortgages

Wells Fargo Settles Charges It Refused Mortgages to Moms

A woman walks past teller machines at a Wells Fargo bank in San Francisco, California.
Wells Fargo promised to enact new Temporary Leave Underwriting Guidelines and educate their loan officers. Robert Galbraith—Reuters

A woman says a mortgage loan officer told her, "Moms often don’t return to work after the birth of their little ones."

Wells Fargo Home Mortgage agreed Thursday to pay $5 million to settle allegations that its home loan officers discriminated against pregnant women and women on maternity leave out of fear that the mothers would not return to work, potentially jeopardizing their ability to repay the loans.

Six families alleged that loan officers employed by Wells Fargo, the biggest provider of home loans, made discriminatory comments during the mortgage application process, made loans unavailable to them, and even forced mothers to end maternity leave early and return to work before finalizing the loans. One of the six complainants was a real estate agent who alleges he lost a commission due to discrimination against one of his clients.

Lindsay Doyal, one of the women who filed a complaint with the Department of Housing and Urban Development, says that she was denied a mortgage despite providing several letters from her employer confirming that she intended to go back to work, the Washington Post reports. Doyal says she received an e-mail from a Wells Fargo loan officer that said, “moms often don’t return to work after the birth of their little ones.”

Since 2010, HUD has received 90 maternity leave discrimination complaints, 40 of which have been settled, with a total of almost $1.5 million going to loan applicants. The families in the Wells Fargo case will receive a total of $165,000, and Wells Fargo will create a fund of up to $5 million for other affected mortgage applicants.

“The settlement is significant for the six families who had the courage to file complaints, and for countless other families who will no longer fear losing out on a home simply because they are expecting a baby,” HUD Secretary Julián Castro said in a statement. “I’m committed to leveling the playing field for all families when it comes to mortgage lending. These types of settlements get us closer to ensuring that no qualified family will be singled out for discrimination.”

Wells Fargo promised to enact new Temporary Leave Underwriting Guidelines and educate their loan officers.

“We resolved these claims to avoid a lengthy legal dispute so we can continue to serve the needs of our customers,” Wells Fargo said in a statement. “Our underwriting is consistent with longstanding fair and responsible lending practices and our policies do not require that applicants on temporary leave return to work before being approved. The agreement resolves claims related to only five loan applications from a period when Wells Fargo processed a total of approximately 3 million applications from female customers.”

[Washington Post]

MONEY Millennials

How Millennials Stalled the Housing Market Recovery

Wrecking ball hitting brick wall
Steve Bronstein—Getty Images

Millennials already have to deal with hefty debt from college, an iffy job market, and growing up in an era where MTV no longer plays music videos, but now they’re being blamed for holding back the real estate boom. Homebuilder adviser John Burns Consulting published details from a study earlier this month concluding that student loan payments will cost the housing industry 414,000 transactions this year that would have totaled $83 billion in sales.

Ouch. The ivory tower is crumbling at the foundation.

It’s been widely assumed that mounting student debt is eating away at this otherwise buoyant housing market recovery. John Burns Consulting’s study — boiled down to a free one-pager for those that aren’t paying customers that got the more thorough report — attempts to quantify the impact.

How did the adviser arrive at $83 billion? Well, we start with the 5.9 million households under the age of 40 that are paying at least $250 in student loan debt, nearly triple the 2.2 million leveraged college grads in the same predicament back in 2005. We then get to the assumption that $250 earmarked for student loan debt every month reduces the buying power of a potential homebuyer by $44,000. That’s bad, and it’s naturally worse depending on how much more than $250 a month some of these indebted students have taken on to pay back. That’s less money they can commit to a mortgage. John Burns Consulting offers up that most households paying at least $750 a month in student loan have priced themselves out of the housing market entirely.

It gets worse

The study only looked at folks between the ages of 20-40. That’s a pretty sizable lot, especially since 35% of all households in that age bracket have at least $250 a month in student debt. However, even John Burns Consulting concedes that there’s “a big chunk of households over age 40 who have student debt” as well. It’s not likely to be as bad, naturally, but it’s all incremental at this point.

This report also happens to come at a time when the housing industry is starting to flinch after a couple of years of boom and bounce. Right now everything seems great. New home sales data released this past week showed the industry’s highest monthly growth rate in more than six years. However, the near-term outlook is starting to get hazy.

Shares of KB Home KB HOME KBH -1.6237% shed more than 5% of their value on Wednesday after reporting uninspiring quarterly results. Revenue and earnings fell short of expectations, and the same can be said about its number of closings and order growth. Earlier this month it was luxury bellwether Toll Brothers TOLL BROTHERS TOL 1.1272% setting an uneasy tone after posting a year-over-year decline in the number of contracts it signed during the period and an uptick in the cancellation rate for existing home orders.

It gets better

The student debt crisis is real, and the skyrocketing costs of obtaining a postsecondary education naturally open up the debate of its necessity. However, it’s also important to remember that university grads are earning far more than those that don’t attend college.

Source: U.S. Department of Education, National Center for Education Statistics. (2014). The Condition of Education 2014 (NCES 2014-083), Annual Earnings of Young Adults.

The median of annual earnings for young adults in 2012 was $46,900 for those with a bachelor’s degree, $30,000 for those with just a high school degree or credential and $22,900 for those who did not complete high school. Those going on to grad school for advanced degrees — and that’s where student loans can really start to pile up — are at $59,600 a year.

In other words, most college grads, and especially grad school graduates, are typically better off than those that didn’t pursue higher education, even with the student loan albatross around their white-collared necks. The housing industry would be better off if colleges were cheaper or if student debt levels were lower, but the same can be said about purchasing power in general. At the end of the day, debt-saddled or not, the housing industry needs its college graduates.

MONEY buying a home

How to Get Ready to Buy a Home

Checking your credit report and getting pre-approved for a mortgage are key, says Century 21 CEO Rick Davidson.

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