New Homes in Utah

I attended the PCBC 2007 Builders Show a week ago and learned a lot about the trends we are facing in the building industry. If I could nail a specific theme that ran throughout most of the presentations and keynote addresses it would be the importance of intangibles in our business. Those intangibles are things that motivate home buyers to purchase homes from the builder that comes closest to what is most important to the buyer. Some of the intangibles are security, green building (environmentally responsible), design, community, peace of mind and many other great concepts. I would love to hear from readers of the New Homes in Utah Blog and have you tell me (us) what intangibles are most important to you.

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No matter what you are hearing from the national news about a bursting housing bubble, there is one thing you will not hear from the doomsayers. That one thing is that there will always be a housing market for everyone and especially for first time homebuyers. The majority of Americans live in modest homes and these homes are generally very affordable in all kinds of housing market trends, up or down. I don’t lament a perceived housing bubble burst, because a correction was overdue. For example, if you purchased a home in 1999 for $365000 and it appreciated over the last seven years to $845000 in 2006, and you can only sell it today for $787000 - what is the downside? The appreciation was formidable. The correction was modest. The money did not come out of your pocket, it was an “on paper” correction. Back to my original thought, the market corrections typically adjust from the top end prices downward, those affected by the greatest $dollar depreciation own the most expensive homes. However, that is only to make the top end homes more affordable to a larger pool of buyers, top end homes have been and always will be small no matter what housing market trend we’re in, up or down. The largest pool of buyers goes to the people selling there modest affordable homes, and that’s a sure thing, up or down.     

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If you have any intention to buy or sell real estate in Utah, then you must read articles from our News section. The information is up to date and reveals what you need to know to make informed real estate buying or selling decisions. Read the Blog, but study the News. You and I will be glad you did.

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I’m often asked about my opinion on 15 year mortgages versus 30 year mortgages. Here are my thoughts on this question. You can always take away from (keep more money) on a 30 year mortgage if you treat it like a 15 year mortgage. But you can’t treat a 15 year mortgage like a 30 year mortgage and still be in your banks most favored status. Here is a easy formula to convert a 30 year mortgage to a 22 year mortgage. Just make one extra mortgage payment a year. On a $1500/month mortgage, think about it, that’s only $125 extra a month or less than $5 bucks a day. If you want to accelerate your 30 year mortgage faster, pay just a little bit more. But remember, the advantage is to you when you treat a 30 year mortgage like a 15 year mortgage. Because if times get tough, for you financially, you can hold -off paying the extra amount until your financial strength returns. That option is not available to you if you are locked into a 15 year mortgage. Talk to your financial institution on how they wish for this kind of accelerated payment to be handled. Don’t assume they know what your intentions are for the extra amount you send. 

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As the axiom states, “If it sounds too good to be true, then it probably isn’t” could also be stated like this. “If it sounds too good to be true, then they just want you to pick-up the phone and call or come in.” Radio and television commercials can often create urgency in :30 seconds, but in :30 seconds you can not get the truth, the whole truth and nothing but the truth. So buyer beware, talk to the people you know and trust first, especially in money matters, diets and exercise equipment. If you don’t know anyone who is an expert in important areas like mortgages, then ask your friends or network until you get a good solid recommendation. Remarkable builders, real estate agents and financial experts thrive on word of mouth advertising.     

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The other day the Salt Lake Board of Realtors held a blood drive for the American Red Cross. As the phlebotomist began her process to draw my donation she asked, “Is now a good time to buy a home?” The answer was and is YES, without any doubt in my mind. In good, up markets or bad, down markets, a home is yours and is more than a dwelling place. Especially if you plan to live there for more than a short while. You’re not renting, you’re not living in your In-Laws basement, you own it. There are numerous secondary tax benefits of home ownership. She and her husband are presently renters. She wanted to know how to go about looking for a home. And asked what she should do next. I explained that most people in her situation do one of two things first. One, they may drive around looking for new homes in new builder communities or search for an existing home in a selected neighborhood. Two, new home buyers may want to visit with a favored mortgage company to help determine what price point the home buyer may wish to shop. Either start works especially when the home buyer has a good handle on their finances and know what they are looking for.

Good shopping - Have Fun

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There are all kinds of “snake oil” salesmen out there who offer get rich schemes for you to buy. And one might have a pre-conceived notion that realtors and builders may fit into the same category. It has been my experience that when home buyers are informed and do not buy above their ablility to afford the home, they will be well on their way to building stable wealth. Do you ever wonder how people can afford some of the magnificant homes you see all over the valley? It is not exclusively through sound financial decision making, or a terrific high paying salary. For our valley, it has often been move-up wealth. Not so long ago, areas like West Valley City, Sugarhouse, Holladay, Sandy and West Jordan, virtually all of Salt Lake County offered very affordable housing. One example, a home in Holladay sold for $83,000, 5 years later it sold for $156,000. Or a home in Sandy sold for $43,000 and 2 years later sold for $67,000. Final example, to make my point, a town home in West Jordan sold for $105,900 and 7 years later sold $172,900. All of these examples are authentic. Of the all the past home buyers I have helped, not one person has ever come back to me and said, “you sold me snake oil “. If you are ready to buy, simply buy. Salt Lake, Davis and Utah Counties are not anywhere near the end of “wealth building.” If you’re renting, living in your in-laws basement, or new to the area ask questions of professionals, explore your options, talk to friends, and use your imagination to consider the possibilities. And then go for it.

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There is a process in purchasing a condominium that most buyers don’t know about. Several things must occur for a home loan to be approved in condominium communities and most PUD s. One should know and be aware that home loans for your garden variety “house” that is built in a conforming community this loan process is less complicated . This example fits a conforming standard for lenders and therefore lending institutions have no difficulty lending other people’s money for that single garden variety home.

Condominiums by their vary nature are a greater risk to a lending institution, therefore, most builders use “Project Approved Lenders” to originate condominium loans. The “real” risk is only what the return on investment might be to the lender’s depositers, not the condominium itself. Condominium loans are generally “investor” based loans or in other words people who lend their own money to consumers. This standard is called, “non-conforming” and implies that it is a loan of higher risk. Sometimes, the higher risk loan will have a slightly higher interest rate. This sort of offsets the investor’s higher risk exposure. Builder Project Approved Lenders are always shopping for the most competitive rates and that is because the market demands it.

Most important to know is that two things must occur before a condominium loan can close. First, the community must qualify for the loan by the investor’s standard. Secondly, the buyer must qualify for the loan. And of the two, it is always easier to qualify the buyer. Investors do their homework by demanding, prior to community qualification, an extensive and costly examination of the builder. There are far fewer investor institutions than there are lender institutions.The mortgage broker and developer provide to the investor a builder history, financials, character, plans, marketing, credit, and more, all factored into an equation for a community approval by the investors with the least possible risk to their investment.

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I was asked this question recently and the answer might surprise you. But first, let me reframe the question. What keeps the Utah Real Estate market booming? Youth. Yes, youth, Utah has one of the countries lowest median age and that contributes to a healthy economy, but I’m not an economist. I look for signals that flash the obvious. Oh sure, real estate has been downright awful in Utah as in the 1980’s. And we have had less than stellar periods of soft real estate sales in more recent years. But, we haven’t nosed dived in real estate for almost 25 years. Our median age 29 year old consumer buys stuff - cars, appliances, furnishings, movie tickets, restaurant meals, JAZZ tickets, Grizzly tickets, and homes. They spend their dollars and our economy benefits from this and does well. Take an economy where the median age of the population is 36. They aren’t buying as much stuff, they may very well be living in their next to last home or bought their last refridgerator. What makes real estate prices drop? The answer is not, fuel prices, war, a conservative president or liberal president, the state or federal tax code, harsh winters or mild winters. The answer may very simply be, “is anyone buying stuff and how much?” But I’m no economist.

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The HOA or Home Owners Association is often misunderstood as to what it is. It is an owner organization that governs the community. The association dues collected belong to the owners and pay for the common area expenses like lawn care, snow removal, clubhouse, etc. The builder does not hold or have any control over those funds. The most frequent question I get and appears to be a large concern for our prospective owners is, “Will the association dues go up?” The answer is, that depends on what the owners decide. It is through an elected president, vice-president, a secretary/treasurer, and board that those important questions will be decided. At times the elected board will put matters of importance to a general ownership vote. It is the boards responsibility to inform and recommend to the ownership a direction to seek. Now what constitutes an “owner.” An “owner” is anyone that has closed in that respective community, this includes investors and may also include the builder. Renters of investor owned property do not have a vote in community matters, but surely could be heard. If you have questions about your HOA and what is usual, customary, and reasonable, leave a comment and I’ll respond in a later entry.

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