Smart Moves

In the years before the housing market tanked around 2008, homebuyers were far less risk-averse than they are now. Nowadays, many buyers, especially young adults, are undershooting their affordability range.

Take the case of a couple in their mid-30s who recently purchased a trade-up property in suburban Maryland. In doing so, they spent less than half what their mortgage lender said they could afford.

“They were shocked at how big a mortgage the lender would have given them. They didn’t want to go anywhere near that high,” says Ashley Richardson, the real estate agent who represented the couple.

Richardson, who’s affiliated with the Long & Foster realty firm in the Baltimore area, says many young adults are conservative in their financial habits because of vivid memories of the Great Recession.

There are other factors affecting the reluctance of many young adults to max out their real estate spending. Going forward, many believe home value appreciation will slow. Yet they anticipate higher living costs, especially for utility expenses, medical care and other services.

“My clients are paying as much as $2,000 a month per child for preschool care,” Richardson says.

All this is not to say young adults are any less motivated than were their parents to buy property. But they want to be sure any home they buy will be affordable for years to come.

Here are a few pointers for buyers:

-- Don’t underestimate your upkeep expenses.

James W. Hughes, a housing expert at Rutgers University, says one strategy for containing homeownership expenses is to buy a place from a builder with high construction standards. That way you can expect relatively low repair and appliance-replacement costs for a period of five to 10 years, as opposed to the often high upkeep costs of older homes.

He also recommends you think twice about the upkeep costs of owning a house with a lot of wood trim and siding, which will probably need extensive repainting every few years.

One way to gain help in approximating future upkeep costs is to be sure your home inspection is done by a well-trained inspector. One source of referrals: the American Society of Home Inspectors (ashi.org).

Are you contemplating a property with a large yard and expecting to hire a landscaping company to keep up the grounds? In that case, Hughes says you can assume the cost of yard work will increase in coming years.

-- Chart the trend for homeowner association fees.

Whether you’re planning to move to a gated community in the suburbs or a condo in an urban setting, the odds are you’ll be subject to a monthly fee to cover the costs of maintenance, security and other common expenses.

Before you commit to any property with a monthly management charge, Hughes says you should get detailed information on these charges, going back multiple years. Then examine the numbers carefully to see if inflation has been a major factor pushing up these costs. If so, he says you should assume this trend will continue in coming years.

“When you’re buying a home, you really need to become an amateur accountant, calculating not only your monthly mortgage payment, but also all the other costs of living there,” Hughes says.

-- Calculate your affordability range with commuting costs in mind.

In recent years, gas costs for commuting have been relatively moderate. But Christopher Leinberger, a professor and housing expert at George Washington University, says energy costs could well increase in the future, as the country grapples with the impact of climate change.

Too few prospective buyers anticipate their commuting costs down the road, Leinberger says.

He estimates that the average vehicle used for commuting now costs more than $7,000 a year to operate, when all the associated expenses are taken into account. And he projects these costs could rise dramatically in the future, particularly for those living in outlying suburbs. That means that finding a cheaper residence in an outer-tier suburb could be false economy.

If possible, Leinberger encourages buyers from a dual-income household to look for a property from which at least one spouse could walk to work or commute by public transit. That way, the household could slim down to a single vehicle, saving lots of cash in the process.

-- Think ahead about utility costs for your property.

“Anyone who hasn’t noticed rising utility costs has been sleepwalking through the last decade,” says Hughes, the Rutgers professor.

Perhaps you’re smitten with a brand-new Tudor with five bedrooms and a home theater equipped with an oversized TV. Or maybe you fancy a big old Victorian with lots of architectural flourishes.

Either way, Hughes urges you to take into account the future costs of heating and cooling any place you plan to buy.

“Be sure to ask the current owners to give you two to three years' worth of utility bills for the property. Notice the trend, keeping in mind that energy costs will undoubtedly keep rising,” he says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)

Low mortgage rates are a strong motivational factor for wannabe homeowners. But in an era of high real estate prices, many still can’t obtain a property without a crash savings program that involves significant lifestyle changes.

“You don’t have to ruin your life forever, but you may have to temporarily reset your priorities in a big way,” says Michael Crowley, a longtime Oregon real estate broker.

Crowley tells the true story of one client, a 29-year-old in the fire sprinkler business who was desperate to move away from his parents’ house. Given his modest salary and scarce savings, he had to sell his pickup truck to generate cash for a minimal down payment and closing costs.

“He knew the sacrifice would be worth the short-term inconvenience,” says Crowley, a past president of the National Association of Exclusive Buyer Agents (naeba.org).

You could also save money by taking a second job --perhaps as a driver for Uber or Lyft. Income from short-term moonlighting won’t necessarily help you to buy a better house. But the extra cash could improve your credit standing if you use it to pay down credit card debt.

Lawrence Yun, the chief economist for the National Association of Realtors (realtor.org), says the fact that mortgage rates are now hovering near historic lows has increased homebuyer eagerness.

“Even though home prices are rising faster than income, national buying power has increased by 6% because of better interest rates,” Yun says.

Are you determined to purchase your first home in 2020? If so, these pointers could prove helpful:

-- Assess your current spending patterns.

Celia Brugge, a Tennessee-based financial planner, says Americans slip easily into temptation when it comes to discretionary purchases.

“It’s easy to fall into impulse purchases for clothing, shoes or electronics. And eating out is a huge category that can easily consume $500 a month or more,” says Brugge, who’s affiliated with the National Association of Personal Financial Advisors (napfa.org).

Brugge urges anyone trying to embark on a savings program for the purchase of a home or any other major financial goal to first go through what she calls “the boot camp period.”

During this initial phase, she suggests you do an inventory of where your money has gone during a recent three-to-12-month period. You can do this by reviewing the entries on your checking or credit card statements and then summarizing your outlays.

Another handy tool for tracking spending that Brugge likes is available through the website of a company called Mint (mint.com). Through its free software, Mint lets you expedite the budgeting process by easily identifying and organizing your transactions.

Once you know where your money is going, it’s time to start making cuts in low-priority categories.

She says many people find that low-cost social activities, like inviting friends over for a potluck supper, are more gratifying than recreational shopping.

In addition, Brugge says many would-be homebuyers can find savings by cutting off their cable TV and instead tuning into free television options available through the internet.

To stay on track and be accountable for their spending, Brugge advises couples to set regular times, as often as weekly, to allocate 15 minutes or so reporting to each other on their recent spending.

-- Take a serious look at your automotive outlays.

Gerri Detweiler, a personal finance expert and author, agrees with Crowley that many people take their need for a late-model vehicle as a given. But to save for a home of your own, you may need to downscale your expectations in this category.

“Owning a new car is not a necessity, though some people treat it as one,” says Detweiler, who drives a Ford Escape she bought used.

In the ideal world, those with a big savings goal will consider selling a vehicle they own and commuting by rail or bus until they reach their savings goal, she says. Another option is to carpool with a colleague from work.

-- Attempt to reduce your insurance costs.

Insurance brokers and salespeople can be persuasive when encouraging clients to maximize their coverage. But Detweiler says would-be homebuyers should examine their spending in this domain. For instance, you might find a way to reduce the cost of your auto insurance policy without compromising your core coverage.

“Shop around for insurance and also look into how much you could save by increasing your deductibles,” Detweiler says.

-- Arrange for an in-person interview with a mortgage lender.

Financial studies show that people save more if they have a concrete objective in mind. But how can you make your home-buying goal more tangible?

Detweiler says one approach is to visit a mortgage lender to determine how much you could afford to spend for a property and how large a down payment you’ll need.

Once you’ve established your borrowing ceiling, Detweiler recommends you embark on a very limited property search by stopping by a few open houses in the neighborhood you’ve targeted.

“Getting a quick overview of the market can prove highly motivating to help you save,” she says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)

For many wannabe first-time homebuyers, pursuing their goal feels like running on a treadmill at the gym. They keep up the speed, but never gain any distance.

The problem is that in recent years, overall home prices have continued to escalate, says Frank Nothaft, chief economist at CoreLogic, which tracks housing markets nationally. What’s more, due to a shortage of available property in popular metro areas, he forecasts that prices will rise 5.8% between now and August 2020.

But the good news for buyers is that if they’re both patient and strategically minded, they may be able to snag a decent deal on a property, even in a highly coveted area, says Stephen Israel, president of a real estate firm affiliated with the National Association of Exclusive Buyer Agents (naeba.org).

Israel urges buyers to consider properties that have languished on the market for a lengthy period -- what are known to the real estate industry as “stale listings.”

Sid Davis, a real estate broker and the author of “A Survival Guide for Buying a Home,” says the most common reason a property goes unsold for a lengthy period is that it was overpriced when it first hit the market. Even after a series of price reductions, such a home typically retains its stigma, which results in a shrinking pool of possible buyers.

“The longer a house is on the market, the less it sells for. That’s one of the tenets of real estate,” Davis says.

Here are a few pointers for buyers:

-- Inform yourself on prevailing property values in your target area.

Many who are open to the idea of buying a stale property are novice buyers on limited budgets. To navigate the market with confidence, Davis says they need to educate themselves on property values in the area where they’re searching.

Very often, the owners of a stale property that was overpriced from the beginning will ratchet down the price in incremental drops. The key for a prospective bidder is to know when the sellers are approaching a realistic price point.

The key to determining market value is to examine closely the data on recently closed home sales on similar properties, known as “comparables.”

“Make sure your agent shows you very recent comps that are really similar to the house you want to buy,” Davis says.

-- Ensure you’re alerted promptly when price drops occur.

Have you found a home that’s appealing but believe is still significantly overpriced?

If so, Israel suggests you track that property closely, waiting for its owners to take a price cut that brings it closer to its true market value.

To stay alert to potential pricing changes for the property of your choice, Israel recommends you ask your real estate agent to keep you constantly updated by email.

“Ideally, you should be kept informed on a daily basis,” he says.

Also, you can sign up for automatic email alerts from one of the several websites that track real estate listings and price changes. These include the sites of such data-driven firms as Trulia and Zillow.

-- Create a compelling contract offer.

Gregg Busch, vice president of a mortgage lending firm, urges bargain-minded buyers to present the sellers of a stale property with a bid that addresses their need for a sure and urgent sale.

“To get the best possible price, you need the strongest possible offer, which shows that you could really go through with your proposed deal,” Busch says.

How can you make your bid stand out from the others the sellers may receive? One way is to obtain a convincing letter of “pre-approval” from your mortgage lender.

“You want a letter showing that an actual underwriter is committed to doing your deal. Underwriters -- not the ‘loan reps’ who work with the public -- are the ones who have the final say on loan approval,” Busch says.

Also, if feasible, he recommends you propose a quick closing date in your offer. That should make your bid especially appealing to the owners of a stale property, particularly one that’s gone vacant after its owners moved away.

-- Seek to time your bid advantageously.

Are you focused on a particular property whose owners have finally taken a major price reduction after the place lingered on the market? In that case, you may be tempted to come in right away with a low bid.

But Israel says it’s often wise to wait at least one or two weeks before venturing your low bid on a stale property. That’s because typical sellers will wait a while after cutting their price before entertaining a low offer.

“Of course, there are always exceptions. If you’re really in love with the house and think the sellers are finally realistic on price, don’t wait any longer. Bid right after the price drop or you could risk losing your dream house to another offer,” Israel says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)