The temperature may be frigid across much of the nation, yet home prices are sizzling and sellers are in the hot seat.
Sales prices jumped 7 percent annually in November, according to a new report from CoreLogic.
That is the third straight month at that pace, far higher than the price gains in the first half of 2017. Low supply and high demand are fueling the spurt and neither of those is expected to ease up anytime soon.
“Rising home prices are good news for home sellers, but add to the challenges that home buyers face,” said Frank Nothaft, chief economist at CoreLogic, in the report. Nothaft said the limited supply is the worst at the lower end, and will hit the growing number of first-time buyers hardest.
The largest metropolitan areas are seeing the biggest gains.
In the nation’s top 50 markets, half of the housing stock is now considered overvalued, based on market fundamentals, like income and employment. CoreLogic defines an overvalued housing market as one in which home prices are at least 10 percent higher than the long-term, sustainable level.
Las Vegas led the November report as not only being overvalued, but showing a double-digit annual price gain of 11 percent.
Las Vegas and Denver are both considered overvalued, but San Francisco is not, as incomes in the tech capital far exceed the national level.
Of the nation’s 10 major markets with the biggest price gains, seven are overvalued. These include Washington, D.C., Houston and Miami. Boston and Chicago are still seeing price gains but are considered at value.
Without a significant jump in home construction, prices will remain high and likely move higher. Mortgage rates could also move slightly higher, and new tax policy limiting mortgage and property tax deductions, is hitting homeowners in some states hard.
All will combine to make housing less and less affordable in the new year.
Follow this three-step process to help you determine how much you should spend on a home.
In order to determine the mortgage payment you can afford, you need to first prepare a budget. It is critical to include the proper short-term savings and long-term investing in your budget before you establish the amount to allocate toward a mortgage payment. While owning a home can help build your net worth, it is an extremely illiquid asset that is not easily converted to cash. You should make certain that you have enough in short-term savings to pay your mortgage for at least six months in the event of an unforeseen financial setback. Also, make certain not to reduce your long-term savings goals for things such as retirement or your children’s future college education expenses.
The good news is many of your budgeted items will not change with the purchase of a new home. For example, dining, food, clothing, and travel expenses will likely remain as they were before the move. However, some items like homeowners insurance, lawn care, pool maintenance, HOA dues, and utilities may increase when you purchase a residence. Property taxes will also likely increase, so just plugging in the amount the current owner pays may result in errors. If your purchase price is higher than the value listed on the tax rolls (as is commonly the case), you should recalculate the property tax based on the purchase price you will pay. It may take up to a year for the taxing authority to update the tax rolls, but eventually the purchase price will be used to determine your property tax due.
Economists say to expect more people to be looking to buy homes in 2017 despite higher mortgage rates. Sean Dowling (@seandowlingtv) has more. Buzz60
Once you have prepared a new budget, it will become apparent how much of a mortgage payment you can afford. If the amount you can afford is less than the amount you want to borrow, it may be necessary to adjust other budget items. Focus on reducing discretionary (non-essential) expenses. For example, you might consider reducing the amount you spend on vacations, entertainment, dining out, hobbies, and even your monthly television subscription so you can allocate more toward your new home. It is also a good idea to shop around for your auto insurance policy at the same time you are getting new homeowner insurance. Bundling these two policies with the same insurance company can often reduce your monthly premium by as much as 20%. All of these little changes to your budget can add up to a tidy sum that can help you purchase the home of your dreams.
Buying a home is no small feat, and there are many financial ins and outs to navigate as you prepare for this step in your life. As parting tips, don’t forget that you’ll need cash for your down payment (which will also influence the amount of your loan), and it’s helpful for you to check your credit report before speaking to a lender so you understand whether your lender will view you as a high-risk or low-risk borrower. Planning is key, and the more thought and energy you put into the process ahead of time, the more smoothly the home-buying process will go.
Clark Randall, Credit.com
Wire fraud is a growing issue for consumers and financial institutions involved in real estate transactions. It’s an area that Congress should focus on as it affects consumers in every state in America.
On Wednesday, the Financial Institutions and Consumer Credit Subcommittee of the House Financial Services Committee held a hearing to examine compliance with the anti-money laundering (AML) provisions of the Bank Secrecy Act (BSA). How is wire fraud related to the BSA/AML and the hearing? According to ACAMS Today, the leading publication for career-minded professionals in the financial crime detection and prevention field, criminal activity related to fraud generates money that needs to be concealed and legitimized. Where there is fraud, there is money laundering.
The FBI says the number of wire fraud scams reported by title companies to the Internet Crime Complaint Center (IC3) spiked 480 percent in 2016. According to the FBI, perpetrators monitor real estate transactions and time their fraudulent requests for changes in payment type (frequently from check to wire transfer) or changes in payment destination to a different account under their control.
There are two common wire fraud scams. The first is known as Business Email Compromise (BEC). This scam targets businesses working with suppliers and/or businesses that regularly perform wire transfer payments. The second is called Email Account Compromise (EAC). This version of a BEC targets individuals who perform wire transfer payments. The FBI said that these scams have been reported in all 50 states and in 131 countries. Victim complaints filed with the IC3 and financial sources indicate fraudulent transfers have been sent to 103 countries. Criminals sought to steal roughly $5.3 billion through this fraud.
ALTA is working with lending and real estate industry groups to increase awareness about wire fraud, identify and promote industry best practices to deter wire fraud and advocate for steps the government can take to protect people from hackers. ALTA also has several suggestions for various players in the industry that could help cut prevent these devastating crimes.
Real estate and mortgage professionals should alert homebuyers at the outset of the transaction to never open unsolicited links or attachments, to avoid sending any sensitive financial information by email and to use an independently-verified phone number to confirm wiring instructions for their earnest money deposit or down payment.
Businesses should follow these best practices and contact law enforcement immediately if fraud is suspected, especially by reporting wire fraud.
In addition, Congress should consider increasing criminal penalties for wire fraud to be as tough as criminal penalties and sentencing guidelines for identity theft and bank robbery.
Finally, a simple change in practices can be the single biggest deterrent to wire fraud: When sending a wire, financial institutions should match the payee’s name with the account number.
Consumers and businesses with an increased awareness and understanding of the BEC/EAC scam are more likely to recognize when they have been targeted by fraudsters, and are therefore more likely to avoid falling victim and sending fraudulent payments.
BY DANIEL MENNENOH, OPINION CONTRIBUTOR
Consider the following scenarios: You’ve worked hard all your life, been careful with your finances and are now looking forward to retirement. You have a general sense of how your assets are performing, but could use some additional guidance. Or, perhaps you haven’t been much of a saver and you are now playing catch-up and have fears of running out of money in retirement. Both scenarios are ideal for consulting with a financial advisor. Yet – many people don’t. Perhaps there is an underlying fear that they don’t have enough money to even qualify for speaking with a financial advisor, or that they are in such bad financial shape that it makes no sense for them to reach out to an industry expert. The important thing to remember is that if someone is willing to take the step to meet with an advisor, it can be advantageous for them to do so, as they might pick up a few tips and strategies they would not have otherwise been exposed to.
So…when does it make sense to work with a financial advisor? In a 2014 survey, people ages 50-59 were only saving $78/month towards retirement, and another 50% that were questioned think they needed less than $500,000 in retirement savings to be financially secure. These are scary statistics and saving this little each month does little for retirement security; you would be looking at working until 70 or 75 to ensure you had a solid nest egg built up. $500,000 will only generate about $25,000 worth of income in retirement; most people need more than that to live in the Northeast.
With that in mind, you should consider working with a financial planner if:
Financial planners aren’t just for people that have money or people that already have a strong sense of their finances and retirement plan. Financial planners can also be an excellent resource for people that don’t have good sense of their finances and are lacking a plan. They offer unbiased, expert advice and can open your eyes up to tips and strategies you might not have been aware of. As all financial advisors have their own style, do your research to determine which one is the best match for you and your needs. You go to the doctor to ensure you are in optimal health; why not go to a financial advisor to ensure your finances are healthy, too?