2W // Real Estate & Home Builders Guide // January 2018
Home buyer
resolutions
By Ilyce Glink and Samuel J. Tamkin
Tribune Content Agency
I
t has been a rough couple of years
for home buyers. At the beginning
of 2016, we said, “Be prepared to see
higher prices and fewer homes on the
market.” At the beginning of 2017, we
said, “Expect to see more of the same.”
And now, as we enter 2018, the news
may be even worse for home buyers.
Housing economists are predicting even
fewer homes will be listed for sale, and
not enough new homes will be built to
satisfy demand, which means home prices
will skyrocket further, putting incredible
pressure on home buyers.
And that’s before the full effects of tax
reform are known and understood. What
is known is that millennials have become
the largest segment of home buyers.
They’ve time-shifted home buying into
their mid-30s, and are now looking to stop
paying (ever-escalating) rent and set down
some roots.
But it’s going to be a tough year for
anyone to buy a home. The number of
homes for sale (known in real estate jargon
as “inventory”) is very low. If tax reform
requires -- but only if enacted this way --
homeowners to live in their homes for five
out of the last eight years instead of two out
of the last five years before keeping up to
$250,000 (or $500,000 if you’re married)
tax free from the sale of their homes, that
will likely keep many people from selling.
Is there anything that could help home
buyers? The elimination of SALT (state
and local tax) deductions might encourage
a few more homeowners to sell in a
higher-cost state and move to a lower-cost
state, but only if they can get a comparable
job. No one wants to net out with a lower
standard of living because they’re paying
lower taxes but getting less money. And,
eliminating deductions might push down
housing prices, which have become over-
heated in some markets.
The tight labor market might help some
home buyers increase their earnings. Over
the course of 2017, more than 2 million
net new jobs were created. According to
the National Association of Realtors chief
economist, Lawrence Yun, 17 million
new jobs have been created since 2010,
and “current employment levels are way
above the pre-recession levels by nearly 10
million.”
What might hurt home buyers next
year? All of the same things, and more.
Eliminating or just limiting the mortgage
interest and property tax deductions will
hurt middle-income and upper-middle-in-
come home buyers. Rising interest rates
mean homes are even more expensive.
Limited inventory means home buyers are
chasing fewer homes, so prices may rise.
And while more new homes are being
built, the overall new number is nowhere
close to the number from before the
housing crisis. While overall employment
is solid, construction employment is still
slow in coming, Yun said. “Although
the latest month’s job growth rate in the
construction sector of 2.7 percent is twice
as fast as the overall growth rate, total
construction jobs are still well below the
pre-recession levels by roughly 20 percent.
Without more skilled construction workers
and more hiring in the sector, the housing
shortage will continue well into 2018.”
As we often say, when it comes to
buying a home, the best defense is a great
offense. If you’re going to buy, be prepared.
Here are some home buyer resolutions you
should make if you’re preparing to buy a
home (particularly a first home) in 2017:
1
. Understand how much you can
spend. Rising interest rates coupled
with falling deductions means you need
to get pre-approved for your mortgage (as
opposed to pre-qualified) so that you’ll
be able to act quickly when you find the
right house. Remember that there’s a
difference between what lenders tell you
is affordable and what will feel afford-
able to you.
2
. Learn how much your home will
cost. Yes, there are the costs of the
mortgage, real estate property taxes,
and insurance. And then there’s the
cost of heating and cooling your future
home. Maintenance is typically under-
estimated by home buyers, especially
first-time home buyers, so be sure to set
aside enough in your budget for small
things (like blacktopping your driveway
every year or two) and big things (like
re-roofing or tuckpointing).
3
. Think about how easy (or hard) it
will be to sell before you buy. What-
ever attracts you to a home will be the
thing you lean on when it comes time
to sell. (And, we won’t always have a
seller’s market in this country. In 2009
through 2012, it was really difficult to
sell a home.) But just because you can
overlook a major flaw (a highway in your
front yard or backyard, or a municipal
waste facility across the street, or some
other reason the location is undesirable)
doesn’t mean future buyers will -- unless
the price reflects that.
4
. Understand the art of negotiation.
The past few years have been all
about sellers, and 2018 is looking to start
in the same direction. That means you
have to be prepared to pay more and get
less. But, there are still deals to be found.
You just have to look harder. You also
have to understand what you want and
what you’re willing to give. Real estate
doesn’t have to be a zero sum game. Just
because you win doesn’t mean everyone
else has to lose.
The best real estate deals allow everyone
to shake hands and walk away from the
table feeling like a winner. And in what
looks to be another year of uncertainty,
disappointment and just plain incivility,
spreading a little extra goodwill during the
negotiations and at the closing table seems
like a very good idea indeed. We promise it
will pay off in spades.
Happy New Year!