Disregard for Home Maintenance Reduces Property Values

The Average cost of home repairs typically costs home owners about one tenth of one percent of the value of the property. For example, a home that is worth $100,000 will run $100 a month in maintenance costs.

Keep in mind this figure represents an overall average which means the property may not even cost anything in maintenance for five years and then it needs a new roof for $6000. Just know that home repairs are an actual and ongoing cost of home ownership. Sadly, many forget to think about this ahead of time and never remember to budget it in before or even after purchasing property, forcing them to take out a home equity loan just as soon as they had begun building equity.

In this bad economy the combination of high unemployment rates and the rising cost of living is creating thinner wallets all across the country. When pockets run thin, home maintenance easily gets tossed to the wayside. Unfortunately however when even the smallest of home repairs is ignored it can lead to much larger and costlier repairs in the long run. Some of which can start out as just a simple leak in the roof which my have only cost $200 to repair, but left ignored could ultimately lead to water damage and mold, which will then run tens of thousands of dollars to fix.

A homes exterior is exposed to the elements 24/7 and requires constant maintenance. When these types of repairs go undone it becomes easy for everyone in the neighborhood to notice. The curb appeal of the property quickly deteriorates and the home turns into an eye sore. Boarded up windows, uncut lawns, missing shingles, fading paint, rotting wood, and defective siding are a few things that can cause homes to rapidly depreciate.

Another downside of neglecting home maintenance is the loss of value to your property. If it's for sale and needs repairs then buyers are going to offer thousands less then asking price. There are so many homes on the market that buyers don't need to buy one that needs immediate repairs. This also forces sellers to drastically lower their sale price just to stay competitive with similar homes not needing repairs.

Homes are only worth what others are willing to pay for them thus the value of a home is strictly determined by it's sale price. Strangely however, a lack of home maintenance is one of the only things that can reduce a homes value prior to sale and worse yet it can reduce the value of the surrounding homes in it's vicinity. It only takes just a few deteriorating homes to reduce the value of an entire neighborhood.

Read the complete 2012 Real Estate Outlook for a more in depth look at the problems facing tomorrows market.

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The Mortgage Forgiveness Debt Relief Act of 2007-2012

Although the MFDR act has been in effect for the past five years, the majority of the public still remains completely unaware of its benefits. This act prevents underwater property owners from having to pay taxes on the difference between the amount of money owed to the bank on the property and the amount that it sold for in a short sale, foreclosure, sheriff sale, abandonment, etc.

If this act does indeed expire at the end of next year, many people will face outrageously large tax bills, for example consider someone in a 25% tax bracket that sells their home for $100,000 less then they owe the bank. The tax bill is going to be staggering and if the public becomes aware of this issue, all those people living in the shadow inventory will rush to short sale their homes next year to evade the tax man and his handy dandy 1099-c form. This will push a massive amount of new foreclosures into a market that’s already saturated with distressed homes for sale. Imagine a real estate market in which the majority of home sellers stand to make no profits what so ever from the sale of their homes, all racing against each other to lower their prices in order to sell out before the tax man returns in 2013. Home values will fall deeper and deeper at an even faster pace than we could ever possibly imagined.

This will further add to the downward spiral of things by increasing the inventory of homes for sale, which will lower the start ups on brand new homes. This means fewer jobs, more layoffs, greater unemployment rates, weaker neighborhoods, less tax for state and government and increased taxes for existing homes and business. All of which will eventually turn into less potential buyers and lower home values as supply and demand is tipped further into the buyers favor and as home loans and home ownership become more expensive in neighborhoods that are becoming worse then they have ever been in the past.

Read up on the complete 2012 Real Estate Outlook to get a better over all picture of things to come.

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Lending Standards Continue to Tighten in 2012, Further Reducing Home Values

Obtaining a mortgage is the top concern among would be home owners in the nation and for good reason. All across the board the financial landscape is changing but none more rapidly than mortgage lending and so much so that it can be overwhelming even to industry professionals. Even though the mortgage industry tries to remain as lenient as possible it has no choice but to accept some of the changes taking place in this financial overhaul. They have been backed into a corner and placed under a microscope as mortgage defaults continue to rise and as they tighten up their standards, the mortgages are quickly becoming more expensive every year in an effort to recoup previous losses and to prevent additional ones.

Mortgage expenses can be broken down into three parts, the beginning, middle and end. The initial cost of a mortgage is comprised of about twenty different fees. They go towards things like attorney’s, appraisers, surveyors, clerks, title insurance, mortgage insurance, points, inspections, cert’s and doc’s. Put them all together and they encompass the loan origination, title work, and closing costs associated with the start of the mortgage. Every year these fees go up and cost buyers hundreds, sometimes thousands more out of pocket than in previous years.

Once the loan has been funded borrowers are now faced with rising ongoing costs like mortgage loan servicing fees, rising interest rates, tax hikes, rising home owners association fees, increased costs for home maintanence, furniture, appliances, handy men, and repair men, increases in home, flood, personal injury, disaster, and hazard insurance, and even higher mortgage insurance premiums just to name a few.

The back end of the loan is also becoming more expensive with increased fees for late payments, fines for delinquencies, higher legal fees for those who enter default, potential liens, and rising costs for refinancing. For the most part it’s pretty safe to say that in translation, tighter lending standards means more expensive mortgages and sinking home values making it more expensive to be a homeowner in any market in every little town or big city in the U.S.

Read the full 2012 Real Estate Outlook Now

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High Unemployment Rates Continue to Contribute to Declining Home Values in 2012

It’s very likely that unemployment rates will continue to hover just above 9% nationally and may even dip into the double digits in some areas of the country. Even though some jobs are being created, it’s hardly enough to offset the amount of jobs still vanishing. Many companies will continue to go out of business, others will try to downsize, some will have layoffs, and some will force their employees to take pay cuts while the remaining few companies must operate on skeleton crews just to get by. To make matters worse, those who do find work again are ending up with jobs that paid less then what they were making before, or their employers are cutting back health care and retirement benefits or passing the cost increases directly to the employee. Entire family's are finding themselves under insured, or with no insurance at all and without any money or plans for retirement. Unfortunately for these homeowners who can’t find work, lost their job, or took pay cuts may no longer be able to afford the house there in and will be forced to sell. What this ultimately leads to is more people looking to sell and fewer people looking to buy thus tipping the scales of supply and demand in favor of declining home values. One other very unfortunate side effect of increasingly high unemployment rates worth mentioning is the simultaneous rise of crime rates which also tends to reduce the value of real estate and weakens entire community’s whole. Crimes such as scrapping vacant homes, robberies, home invasions, and petty theft are skyrocketing like never before, reducing the public's trust and confidence in the police force and shaking the neighborhood to its core.

Read the Eniter 2012 Real Estate Outlook

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Death of the McMansion

Here lies the McMansion, next to it lies it's former home owners, buried in debt.

It didn't take long for people to realize how unfabulous it was to pay high real estate taxes and outrageous energy bills for wasted spaces, empty rooms, vaulted ceilings, useless attics, vacant basements, and big garages.

Over sized properties have over sized bills, the taxes alone are nearly equivilent to a mortgage payment on an average property in the neighborhood, and the utility bills are equally appaling. Forget about going green, most of the McMansion's energy bill is spent supplying wasted space like vaulted ceilings, empty basements, attics, and unoccupied rooms.

Worse yet, buyers soon discovered that even if their loan had the best rate in town, they were going to pay back enough interest to buy their banker a 100' yacht. A quarter million dollar, thirty year mortgage carries an interest charge of roughly clsoe to another quarter million, nearly half of which gets paid back in the first ten years of the loan.

Read more at Suite101: The 2012 Real Estate Outlook | Suite101.com

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FHA Requirements make it hard to buy or sell a Condo or Townhome

Purchasing property can be tricky at times, more so today than ever before and the FHA has taken considerable steps to ensure that purchasing a condo or townhouse is no different. In fact their new underwriting requirements have made it so difficult to secure financing that it's almost impossible to accomplish. Not only does a buyer have to meet all other lending criteria such as being credit worthy and having saved enough money to cover down payment, closing costs, and the first couple of mortgage payments, they now have to see if the Home Owners Association for the development can meet all the FHA guidelines or the loan doesn't get approved even if the buyer qualifies. In 2010 the FHA stopped doing spot approvals and now everyone that wants to buy a condo or townhouse has to meet the following guidelines. For starters the H.O.A. must budget at the very least 10% of their income to reserves. Then the development as a whole can not have more than a 15% delinquency ratio on the home owner association fees. The development must have sufficient insurance coverage including hazard, liability, flood, and fidelity. No more than 25% of the development can be used commercially and at least 50% of the development must be owner occupied. There are a few other stipulations but these are the ones that most often seem to get in the way of financing. Having 10% reserves and less than 15% delinquency ratios are the two most difficult criteria that the H.O.A. has to meet and they are the two most common reasons why the loan will be denied for FHA approval.

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The Government wants to Eliminate the Mortgage Interest Tax Deduction

Most Likely Outcome: Mortgages will Become More Expensive and Real Estate Values will Decrease.

The government wants to eliminate the mortgage interest tax deduction. This means that the interest paid on mortgage loans would no longer be tax deductible making them all that much more expensive. Historically this has always been a family’s largest tax deduction and without it they would start receiving significantly smaller tax returns every year. Outside the realm of real estate, smaller tax returns nationwide would also be detrimental to the yearly economic stimulus that the tax season provides our economy with during the second quarter of every year. To get back on track, eliminating this deduction could prevent potential buyers from purchasing second homes or investment properties as tax shelters since there would be no more tax advantage to doing so. On top of it all, buyers would start becoming more cautious and aware of how much interest is being tacked onto the loan since they know now they will never see any of their money ever again. This triple threat of more expensive mortgages, buyer awareness, and smaller tax returns will have a deep and devastating ripple effect throughout our economy that will reach far beyond real estate itself.

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