The Real Estate Report May 1, 2013

What Boston Means

When the news of the Boston Marathon bombings hit, it brought back vivid reminders to Americans. Certainly we did not know at the time if we were facing a massive threat of the scope of the 9-11 tragedy. For those watching the economy and the markets, it was also an important reminder that whatever the prognosticators say, all bets are off if there is an intervening variable. That variable could be a terrorist attack or a super-storm or some other major event such as a tiny country in Europe going bankrupt. Yes, it is a reminder of how vulnerable we are. There is no way of completely protecting ourselves and our economy from all threats -- manmade or from larger forces such as Mother Nature.

It is also a reminder of how resilient our nation and economy can be. The day of the Boston Marathon, civilians ran toward the explosions to help others. They could not have known that these were not just the first salvos. Similarly, some five and one-half years ago, our economy faced a huge calamity. The government stepped in and took actions to stabilize the damage--not just one President--but two Presidents, the Federal Reserve Board and Congress. We might debate now how effective these actions were, but we can't debate the fact that the economy has made a significant recovery as it has limped along. Our country has faced threats from its inception and we have always been resilient as we have become a world leader. This week's employment report is important and its release will be watched by millions. However, if it is the second disappointing report in a row, we know we have the resiliency to recover. From this viewpoint, we hope it is not disappointing as resiliency is important, but proof of recovery is even better medicine.

Nearly 21 million Americans (29.3 percent of homeowners nationwide) own their homes outright, unencumbered by a home loan, according to a recent Zillow analysis of housing finance data. Analyzing data through the third quarter of 2012, Zillow found that 20.6 million homeowners nationwide own their homes free and clear of debt. Among the nation's 30 largest metro areas included in the study, Pittsburgh (38.6 percent), Tampa (33.2 percent), New York (29.7 percent), Cleveland (29.4 percent) and Miami (28.9 percent) had the highest percentage of free-and-clear homeowners. A number of elements influence the percentage of free-and-clear homeowners in a given area, including median home values. Zillow found that areas with lower home values generally have higher outright homeownership rates, as smaller loan amounts are easier to pay back more quickly. Demographic factors including the age and credit rating of primary borrowers also influence free-and-clear homeownership rates. Zillow found that 65- to 74-year-olds are most likely to be free-and-clear (20.5 percent), followed by 74- to 84-year-olds (17.9 percent). This is attributed to the fact that the longer someone owns a home, the longer they have to pay off their home loan. Interestingly, when examining free-and-clear ownership rates as a percentage of homeowners in various age groups, Zillow found 34.5 percent of 20- to 24-year-old homeowners are free of debt. Source: Zillow

Price and proximity to work are key concerns for first-time homebuyers, while trade-up buyers tend to be most focused on the design of the home and the neighborhood, according to "Characteristics of Home Buyers," an analysis of the recently released 2011 American Housing Survey (AHS) by the National Association of Home Builders (NAHB). The biennial survey, which is conducted in odd-numbered years by the U.S. Census Bureau, covers about 6.8 million home sales that occurred in 2009 and 2010. NAHB's analysis additionally compares the homes that buyers purchased with what they say they want using results from "What Home Buyers Really Want," a new consumer preference survey published by the association. "Among first-time homebuyers, price was the most frequently cited reason for selecting a particular house, with a 38 percent share. At 30 percent, proximity to work was the most frequently cited reason for choosing a specific neighborhood," said David Crowe, NAHB's chief economist. "The majority of trade-up buyers (36 percent) cited the design of the home as the primary reason for selecting a particular house, with 28 percent citing the looks and design of the community as the reason for choosing a specific neighborhood." More than 90 percent of the sales reported in the 2011 AHS were existing homes, a significant increase from previous years. "Sales of new homes were very low in 2009 and 2010 due to the unique circumstances surrounding the Great Recession and the housing market crisis. We expect that situation to turn around as the housing market recovery takes hold," said Crowe. "More than half (55 percent) of the people surveyed for 'What Home Buyers Really Want,' NAHB's consumer preferences study, said they would prefer to purchase a new home rather than an existing home." There's good reason for that preference. New homes provide buyers the opportunity to choose finishes, fixtures, flooring and more. And they are apt to have the other elements that buyers want including open design, up-to-the-minute kitchens and baths, and features such as a laundry room and walk-in pantry that help with organization and storage. There is also growing interest in single-story homes, and energy efficiency continues to be a concern. In fact, nine out of 10 buyers surveyed would prefer to purchase a home with energy-efficient features and permanently lower utility bills rather than to buy a home without those features that costs two to three percent less. Source: National Association of Home Builders

Renters insurance seems undervalued by both apartment and single-family home dwellers. In fact, only 34% of home and apartment renters have insurance, according to a study from InsuranceQuotes.com. When surveyed, 60% of people incorrectly guessed $250 to be the annual cost of renter's insurance. About 21% of individuals interviewed thought renter's insurance would cost them as much as $1,000 per year or more. In reality, the true cost of renter's insurance is only $185 per year. As for why few buy renters insurance, 57% of those interviewed said their apartment or home has decent security. About 52% said renter's insurance is too expensive, another 47% said their landlords already have insurance. "Renter's insurance is a lot more affordable than most people think," said Laura Adams, senior insurance analyst at InsuranceQuotes.com. "Most renters don’t realize that their landlord’s insurance usually only covers the structure and not the renter’s belongings. And even in a safe area, renters can fall victim to theft, fire, water damage or another calamity." Source: HousingWire

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