Smart Moves

After taking her employer’s early retirement offer, an engineer in her early 60s -- an ardent tennis enthusiast --began attacking her bucket list. As her first check-off, she flew to Paris for the 2022 French Open.

Upon her return from France, the engineer -- who was recently widowed -- took a closer look at her financial picture. In particular, she reasoned this would be the ideal year to sell the contemporary lakeside house she and her husband had custom designed 27 years ago.

“This fabulous seller’s market can’t last much longer, especially now with the economy weakening and mortgage rates rising. That’s why I want to sell this year to avoid missing the boat entirely,” the widow says.

Like a number of other homeowners, she worries the rise in home valuations that’s occurred since the start of the pandemic is unsustainable. She would love to hang on to the lakeside property -- to which she’s emotionally attached -- but fears waiting to sell will cost her.

“Some people think we’re in a bubble and home prices will plummet like they did more than a decade ago during that big surge in foreclosures,” says Mark Nash, a real estate analyst.

Actually, many housing economists are skeptical that home prices will fall in the near future, eventually ushering in a buyer’s market. They contrast the current period from the last major recession, when homebuyers ruled.

“Although the Great Recession was triggered by a housing crash, it’s an outlier in the grand history of recessions, which have often strengthened investment in housing, due to its relative stability as an asset,” says Nicole Bachaud, an economist with Zillow, the national real estate company.

Zillow recently conducted a survey of housing experts, who were polled on whether they believe the real estate market is in a bubble. Of those surveyed, 60% do not believe the U.S. housing market is currently in a bubble, compared to 32% who disagree. Eight percent aren’t sure.

“Americans have seen home values rise at record rates over the past few years. But although a recession is looking more likely, the housing market today is a far different beast than what we saw in the mid-2000s,” says Bachaud, noting that lenders now require much stronger income and credit metrics before approving mortgages. Also, available homes are in short supply relative to demand, especially from young-adult purchasers.

Still, the retired engineer -- who is risk averse when it comes to financial matters -- doesn’t want to chance a delay in the sale of her home. She recently called in three real estate agents and plans to soon list with one of them.

“My only large concern about selling now is that it’s very hard emotionally to let go of the house where my husband and I had so many happy years,” she says.

Here are a few pointers for sellers:

-- Conduct a wide search for your next home before selling.

With more than 20 years of experience selling real estate behind her, Ashley Richardson, of the Long & Foster realty firm, has gained a key insight into the emotional bond many people have to a longtime residence. She says it’s often possible to transfer this attachment to another home.

Consequently, she recommends that sentimental sellers start looking for their next residence as soon as they put their property on the market, or even earlier.

“This way you’ll more quickly detach from the house where you’ve been living for a long time,” says Richardson, who’s affiliated with the Residential Real Estate Council (crs.com). However, she urges those making a housing transition to restrict their property search solely to neighborhoods with homes they can afford, so as not to set themselves up for disappointment later.

-- Review your housing plans with your grown children.

Nash, the author of “1001 Tips For Buying and Selling a Home,” says many empty nesters fear that letting go of a long-held property will mean fewer visits from family members -- including their grown kids and grandkids. Yet lots of would-be sellers are also anxious to liberate themselves from the carrying costs of a large property.

To address such fears, Nash says it can be wise for sellers to discuss these anxieties with their offspring. Perhaps future multi-generational family visits could be centered in a resort area where all could spend quality time together.

“You might be pleasantly surprised at the lengths your family members would go to see you on their vacation days,” Nash says.

-- Try to neutralize your property by removing memorabilia.

To break the emotional ties to their property, it helps many people to sort through and remove sentimental items. Nash says you’ll want to cull through your family memorabilia, eliminating all but the most precious of items.

Nash suggests you also give away or pack away many other family-related items, including toys and children’s books. And he recommends you remove family photographs from your walls.

Neutralizing your property will not only help you detach from the place emotionally, but it will also make it easier for you and your listing agent to attract buyers.

“People aren’t going to pay more because your house is filled with memories. In fact, having lots of memorabilia on display will only slow the sale of your property, because it keeps people from picturing themselves living there,” Nash says.

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

A Massachusetts couple in their 30s -- a teacher married to an engineer -- spent nearly the whole pandemic feeling squeezed within their two-bedroom bungalow. Their longing for more elbowroom and a larger yard only intensified after their first child was born two years ago.

Like many millennials with growing families, this pair had recently spent many frustrating months attempting to upsize. But they repeatedly lost out to rival bidders.

“They fretted they’d never win in the red-hot seller's market that prevailed throughout the pandemic,” says Rich Rosa, the real estate broker who represented the couple.

But, in fact, this spring the couple finally managed to purchase the much bigger house they wanted -- a stately colonial with four bedrooms, a two-car garage and a fenced, half-acre yard.

“They were tenacious, of course, but tenacity wasn’t the whole story in their case. In their quest to trade up, they benefitted from the ever-so-slowly moderating real estate market,” according to Rosa, president of the National Association of Exclusive Buyer Agents (naeba.org).

Danielle Hale, the chief economist for Realtor.com, the home listing company, says the mismatch between available inventory and buyer demand is still the dominant factor in the present property market, keeping prices high. Higher mortgage rates are also limiting affordability.

“The median listing price grew by 16.6% over the last year,” Hale says. Yet she also notes that new listings rose nearly twice as fast in the four-week period ending May 15 as they did during the same period a year ago.

Stacy Berman, a former sales manager for a real estate brokerage in the Georgetown area of Washington, D.C., says more long-time homeowners are now rushing to get their properties ready for sale by fall.

“Some aging baby boomers with grown children are fearful they will miss the peak of the seller’s market if they don’t act soon. This could foretell more inventory coming on the market, giving buyers more choices,” Berman says.

Here are a few pointers for buyers struggling to trade up:

-- Educate yourself on local property values before you bid.

Eve Alexander, a long-time real estate broker who works solely with buyers, says they need context on prevailing values to make certain they don’t bid too much.

“For comparisons, try to identify five to 10 comparable properties that have sold recently in the area where you’re looking,” Alexander says.

If you’re seeking to buy in a neighborhood with widely varied properties, it’s helpful to compare the homes on your list on a price-per-square-foot basis. Then adjust for differences in size and home features.

After estimating the current market value of the home you wish to buy, it’s time to decide how aggressive an offer you want to make.

“You won’t want to push the limits if you’ve fallen in love with the property and feel it’s a ‘do or die’ situation,” she says.

On the other hand, you might choose to make a lower offer if there are other available homes in the area that would meet your needs equally well.

“It’s always easier to negotiate without emotion if you can find second- and third-choice houses you also like,” Alexander says.

-- Don’t use comparables from “market testers.”

Eric Tyson, co-author of “Home Buying For Dummies,” says in every market there are a few sellers who won’t budge from an unrealistically high price.

How can you tell which sellers are merely testing the market and will never negotiate seriously?

Tyson recommends you ask your agent to find out if previous offers have come in on the property you want. If the owners have already rebuffed one or more decent offers without so much as a counterbid, this indicates they’ll probably resist reason with you, too.

The good news for buyers is that information on past offers is often readily available through the listing agent.

-- Seek to determine the seller’s equity position.

Are you seriously interested in a home but have yet to submit an offer on it? If so, Alexander says it’s wise to inform yourself on the sellers’ ownership stake before you bid. As she says, those with more equity have more potential room for compromise.

One source of clues on the owners’ equity position can be found by searching local government land records. At the minimum, these records (usually available online) should tell you when the current owners purchased the property and the original price they paid.

“If the sellers bought the house a couple of decades ago and haven’t refinanced, they should have a lot more equity,” Alexander says.

-- Ask your agent to pose questions to the seller’s agent.

When owners have an urgent need to move, it’s normally against their interest for that information to be broadcast to the world, which could weaken their bargaining position. Even so, Alexander says many listing agents will readily divulge such client information in response to questions.

Another way prospective buyers can gauge the sellers’ level of motivation is to ask nearby neighbors. Alexander recommends that the buyers pick a weekend to walk through the community, chatting with a few residents about the pros and cons of living there. In the course of the conversation, they’ll likely tell you what they know about why nearby homes are for sale.

“In many cases, well-informed neighbors will be happy to give you the inside story,” Alexander says.

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

Many American homeowners now have enviable amounts of equity -- built up through the rapid home value appreciation that’s occurred since the pandemic began. What’s more, some own their homes free and clear, having paid off their mortgage years ago.

But as they move into their elder years, an increasing number of seniors now wish to tap that growing home equity to finance home improvements, allowing them to age in place.

“As they advance in years, most folks desperately wish to stay in their longtime residence. Yet to do that, they often need funds to modify their property -- perhaps by adding an elevator or a first-floor master bedroom,” says Merrill Ottwein, a real estate broker with Coldwell Banker.

To finance these modifications, some seniors who own their homes free and clear are seeking to apply for a new “cash-out” mortgage. But that can be a tricky path.

Take the case of a 66-year-old engineer who owns a two-story colonial with an attached garage he wishes to convert to an accessible bedroom. The problem is that because the man now has had no debt or credit cards, he must reestablish his credit before borrowing.

Eric Tyson, author of “Personal Finance for Dummies,” doesn’t know the engineer. But he says the man can likely reclaim his credit standing within a matter of months simply by taking out a new credit card, using it responsibly and making his payments on time.

“Another option is to become an authorized user on a credit card account of a spouse or other relative with a good payment history,” Tyson says.

Here are a few other pointers for those seeking to strengthen their credit:

-- Move forward promptly with your financing plans.

Mortgage rates have been ascending in recent weeks and economists forecast this trend will continue, barring another recession. That’s why home loan specialists say there’s no point in postponing refinance plans in hopes of a dip in rates.

“If you need to remodel your house, you’re better off pulling the trigger now, before rates rise even more,” says Keith Gumbinger, a vice president at HSH Associates (HSH.com), which tracks mortgage markets throughout the United States.

Many seniors assume that once they’re retired, they’ll automatically lack access to the mortgage market. But Mike Hummel, a longtime mortgage broker, says that’s a misconception.

“As lenders, we want to originate loans. If you have the retirement income or assets to pay back the new mortgage, you should be able to qualify regardless of your age or employment status,” he says.

Hummel encourages seniors who are interested in remodeling with a cash-out mortgage to contact a reputable lender in their community to discuss their current options, based on their equity picture.

-- Realize the vital importance of good credit for all borrowers.

Ever since the real estate downturn of 2008, which resulted in numerous foreclosures, lenders have maintained tight standards with little latitude to bend the rules.

“As has been the case for all these post-recession years, you still have to jump through a lot of hoops to get a mortgage of any kind, especially a cash-out one,” Gumbinger says.

Now as much as before, prospective borrowers are asked to explain blemishes on their credit reports, correcting flaws and inaccuracies when possible. Even seemingly minor dings could complicate the processing of your loan.

Prudent borrowers closely examine their credit reports before applying for a home loan. Under federal law, each year you’re entitled to one free credit report from the three largest credit bureaus: Equifax, Experian, and TransUnion. Just go to this website: annualcreditreport.com.

You will also want to access your credit scores. Such scores, which draw on data from the credit bureaus, provide lenders with a quantitative measure of a person’s credit risk. Most lenders still use FICO scores, pioneered by the Fair Isaac Corp.

Usually, you need to pay a fee to obtain your credit scores. One approach is to buy these through the Fair Isaac website: myfico.com. You can also receive credit scores through the three large credit bureaus. FICO scores range from 300 to 850.

-- Seek to lower your credit card repayment burden.

Do you already have more debt than you’d like? If so, remember that big minimum monthly payments on your plastic can limit your capacity to take out as large a mortgage as you’d like.

Along with your FICO score, another key qualifier is your debt-to-income ratio. If you face high minimum payments each month v-- whether on credit cards or car payments -- you might be unable to borrow as much as you need when you refinance.

As Gumbinger says, one way to lower your monthly debt payouts is to move balances from your highest interest-rate credit cards to your lowest-rate ones. Alternatively, consider moving high credit card debt to an installment loan made through a credit union or a community bank.

-- Choose a fixed-rate mortgage over a variable rate one.

One lesson many consumers learned the hard way through the mortgage crisis is the potential danger of adjustable-rate mortgages.

Though they often start off with a low “teaser rate,” ARMs can later adjust upward -- sometimes to a shockingly high level. That could prove especially problematic for seniors who often live on fixed incomes.

“The reality is that if you accept an adjustable-rate mortgage, you’re agreeing to bear the risk of still steeper mortgage rates going forward,” Gumbinger says.

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