Are Americans Addicted to Low Rates?You can’t read or watch the news and not view a story about some type of addiction in America — whether it is common substances such as caffeine, legal prescription drugs such as pain killers, or illicit drugs such as heroin. But today, we ask a question about addictions and our economy. Are we hooked on low interest rates? Perhaps we are using too strong a word to describe the situation, but it seems like we have gotten pretty used to historically low rates during our economy recovery.
Why do we think that we are getting too used to low rates? For one, every time there is talk of the Federal Reserve Board raising rates from these ridiculously low levels, the markets react significantly. Keep in mind that we are talking about raising rates slightly from close to zero. Of course, most Americans don’t really recognize the Fed’s Federal Funds Rate. But if you look at something they are familiar with, such as rates on home loans, we can see the issue more clearly. Rates on home loans averaged over 7.5% for a generation from 1980 until 2010, a period of 30 years. Now rates have averaged around 4.0% for the past few years.
What happens if rates move up in the future? Will people stop buying homes? If someone is paying 4.0% on their home loan, higher rates would make them more reticent to sell their home in the future unless there is a major life change such as marriage, relocation or retirement. And certainly, they would be more reticent to refinance as well. Thus, if rates are going to rise from these unbelievably low levels, they would have to rise gradually such as not to have a significant affect upon the economy. The Federal Reserve Board will have to be very cognizant of these possibilities as they consider their future moves.
Sellers may feel hesitant to reveal any minor problems with their home because they are afraid they’ll scare off buyers. But here’s a warning for sellers: They may land in legal trouble if they fail to disclose. “Most sellers think it is in their best interest to disclose as little as possible,” Rick Davis, a real estate attorney in Kansas, told realtor.com®. “I completely disagree with this sentiment. In the vast majority of cases, disclosing the additional information (especially if it is something that was previously repaired), will not cause a buyer to back out or ask for a price reduction.” Disclosure laws vary from state to state, and sometimes even on a local level. “In general, sellers should disclose any known facts about the physical condition of the property, existence of dangerous materials or conditions, lawsuits or pending matters that may affect the value of the property, and any other factors that may influence a buyer’s decision,” according to a recent article at realtor.com®. This includes disclosing issues that have been previously repaired, Davis says. Also, disclose any inspection reports. “It is much better to lose a buyer by clearly disclosing all known issues than it is to spend two years and tens of thousands of dollars in litigation,” says Adam Buck, a certified real estate specialist with the Frutkin Law Firm in Arizona. Rest assured, sellers won’t be put on the hook for failing to disclose issues that they didn’t know about. They should be careful not to make any guesses when prompted, particularly when it comes to the measurements of the home — one common problem area for disclosures. Source: Realtor.comOn average, Americans have about $150,506 of equity in their home, according to a new report by the Urban Institute, “How Much House Do Americans Really Own?” This amount is what’s left over after the debt of the home loan is subtracted from the home’s value. The Urban Institute notes that this number reflects the majority of Americans’ net worth, financial security, and economic future. Not surprisingly, older adults have the most wealth, since they’ve been typically paying longer on their home loans longer. Americans over the age of 60 hold 52 percent of all home equity in the country; those under 50 hold 23 percent; and owners under 40 owned 17 percent. “Home ownership is important to building wealth,” says Laurie Goodman, the report’s author. “This can be seen by the fact that housing wealth, while inequitably distributed, is still more equitably distributed than other types of wealth.” Home owners can borrow on the equity of their homes as home equity lines of credit, cash-out loans and reverse mortgages, the Urban Institute notes. The study also indicated that, of the 73 million owner-occupied housing units in the U.S., nearly 27 million households had the home completely paid off. Source: Credit.com
Developers are finding that buyers have a passion for higher ceilings, and they’re taking them beyond the standard eight-feet in luxury residences. More builders are now promoting ceiling heights of 11, 12, and even 20 feet. They’re finding that buyers are willing to pay a premium for the extra height too. Just how much? Realtor.com®’s research team found that raising ceiling height to 10 or 11 feet from the standard height of eight to nine feet led to an average 50 percent jump in average listing price per square foot. The highest premium was for ceilings between 12 and 15 feet, which saw an average 76 percent boost per square foot than units with standard heights. On the other hand, taller ceilings – higher than 15 feet – saw the smallest premium at 28 percent higher than standard ceilings. “The smaller the apartment, the [smaller] the impact of tall ceilings,” says Jonathan Miller, an appraiser in New York. But too tall can make apartments feel claustrophobic, he adds. Source: The Wall Street Journal