Winter Blues Got You Feeling Down?

If you live in a good portion of the US, you might find yourself a little down this time of year. Christmas is long past, and spring still seems far away, and yet winter still looms. 

If you have a house on the market, chances are that showings have slowed, and prospects for a sale any time soon seem dim. 

But that doesn’t mean that this time of year can’t be productive. 

Here are a few things that will both lighten your load [who among us hasn’t accumulated a little bit too much stuff?!], and possibly brighten your mood.

Start with one room [or closet, or drawer] at a time, and go thru your belongings. This is a good time to both organize it, and get rid of things that you no longer want, need, or use. Separating into piles can be helpful. I generally use these guidelines: keep [put away, fix, or put away elsewhere], donate [to friends, to secondhand stores], and throw away. I’ve found it much easier to be pretty brutal when going though stuff, not giving myself more than a few seconds to decide if I’ll keep something or not. Admittedly, I’ve had a few times where I’ve gotten rid of something I’d later wished I’d kept, but for the most part, I feel good about having a less cluttered house and life. 

Another thing to keep in mind if you’re donating items is that you can get a receipt and claim donations on your taxes if you itemize. 

Winter is also a good time to do repairs and cleaning that you might not want to do when the weather is nice and you want to be outside. I like to go through paperwork during the winter, organize the pantry, and clean things like light switches, fans, walls, and baseboards. 

Lastly, take note of  and repair any drafts in your house. They’ll be harder to spot in the spring and summer, and your wallet, and comfort level will thank you! 

These are all things that can be done cheaply [or free!], and they’ll both make it easier to sell your house, and easier to move when you do! 

Tips to Help Your Home Sell quickly

1. Don’t try to do it yourself. Find an agent that you both like and trust, and work with them. Don’t be afraid to interview multiple agents to find a good fit. Realtors are professionals, who are paid to do this for a living. They’ll be able to guide you more effectively than you will probably be able to do yourself.
   
2. When you find an agent, listen to them. Again, they’re professionals. See above. I’m not suggesting to leave your brain at the door, but consider their knowledge of the subject. Let them do their job. And if you’re not happy with them? You can always find another.
   
3. Price it right [and low]. Don’t be afraid to list your home “too low,” because this will draw competing bids. This is a more effective method than starting high and lowering it, because potential buyers will see a decreasing price, assume that it has been on the market for a long time, and give low-ball offers.
   
4. Accept that the market is what it is. Just because you bought your house ten years ago for a certain price doesn’t mean that the current market will allow you to make that price [and then some] back. It can be painful, but in a bad market, that’s something better accepted sooner than later.
   
5. Renovations aren’t magic. Unless there is something really wonky going on in your house, simple, relatively cheap fixes will give you more bang for your buck. Think curb appeal. Fresh paint, newly cleaned carpets, flower boxes by the entryway, changes in door knobs and light fixtures--all simple things that make an impact.
   
6. Online presence. You really can’t avoid having an online presence anymore, especially when selling a house. Most potential home buyers begin by searching online, and narrow their searches that way. If your house doesn’t show up, it won’t even be on their radar. 

Ugly House? Maybe Not as Big a Deal as You Think

Let's face it...some of us live in homes that are downright ugly. If that's where you're at, here are some tips:

1) Clean it up, and make it clutter free. If you're dealing with an odd floor plan, this is one of the best things you can do. Don't add messy & dirty on top of things!

2) Change the carpet, paint the walls. If there's wallpaper, get rid of it! Depending on your skill level, these are things you may be able to do yourself. If you're not competent in those sorts of endeavors, hire a professional, or friend/family member who can do the job well.

3) If you can afford it, have professional staging done. People who stage homes professionally are able to see the best your home has to offer. They can accentuate the selling points, and will be able to downplay the not-so-appealing aspects of your home.

4) Price accordingly. If your home needs a lot of work to make it more...appealing...you may end up having to lower the price. Especially when there's a slow market, there are lots of homes to choose from, so make it sellable with a reasonable price.

5) Agent incentives.  This won't directly attract buyers, but it does give agents more reason to show your home more frequently. More traffic = higher probability of a sale.

6) Be honest in your ad. Don't overstate things. That doesn't mean you need to make the place sound like a dump, but don't call it a parade-of-homes house if it isn't. There are people who specifically look for fixer-upper homes.

7) Hire the right agent. If you're talking to an agent who typically deals in brand new model homes, you might want to talk to someone else. Find someone with experience in selling unique homes.

Life After Foreclosure?

Think you're doomed after a home foreclosure? There may be some good news for you.

While you'll probably have to wait seven years to obtain a conventional mortgage, Freddie Mac, Fannie Mae, and the FHA say they only require a three-year waiting period post-foreclosure. Granted, this is dependent on the circumstances surrounding the foreclosure, but there may be some hope for you. Some requirements may include a large down-payment [20% or more], and you may be required to pay higher than market interest rates, but there's still the potential for homeownership in the near-er future than you may have expected. Lease-purchase options are another possibility if a foreclosure lies in your more recent past, but you still want to buy a home. A knowledgeable realtor will be able to talk to you about these options in more depth.

Pre-Approval or Pre-qualification

If you’re like most potential home buyers, you’ll need a mortgage. That said, as complicated and often lengthy as the whole process is, there are a few things you can do ahead of time to make the whole thing go more smoothly. One of those things is a mortgage pre-approval (not to be mistaken for a pre-qualification). 

First, let’s talk about loan pre-qualification. The simpler of the two, a pre-qualification looks very broadly at your financial situation and gives you a general idea of how large of a loan you may qualify for. It doesn’t look at your credit report, or your financial situation in-depth. It can be a helpful step, and an opportunity to talk to a lender about your financial and home-buying goals. Since the pre-qualification process is so simple, and doesn’t take all of your financial information into account, it carries a lot less weight to a seller than a pre-approval.

A pre-approval is a much more involved process, which includes an extensive financial background and credit rating. You’ll fill out a mortgage application, and generally have to pay an application fee. This gives a specific mortgage amount for which you are approved, and at times you are able to lock in a specific interest rate. After pre-approval, you’ll receive a conditional commitment from the lender, which will allow you to look at homes at or below that price level. This is obviously a huge advantage with a seller, since you’re automatically one step further along in the process.

Another advantage to completing either of these steps is that you’ll know in advance how much you can afford, and you’ll be able to move quickly when you find the right place. In a competitive market, pre-approval can be the difference between getting the house of your dreams, or losing out. 

Periodically, we’ll write posts on some basic economics—some will be mini history lessons, so you know how we got to where we are now, others will be about things you hear on the news (which is especially important as we’re coming into an election year!), and still others will be about economic principles we think everyone should be familiar with.

Our goal is simply to give you access to understandable information, and hopefully help you to become a more confident decision-maker.

Stay tuned!

Cheap Ways to Increase Your Home's Curb Appeal

With real estate season fast approaching, here are a few quick, cheap ways to increase your home's curb appeal, according to Kiplinger:

Regardless of your budget--

1) Make a plan! Your goal is to do things that will complement and enhance the appearance of your house, not clash with it.

2) Take some time to do your research! If you're doing landscaping, make sure that the kind of plants, flowers, etc., make sense in your yard. A cactus is probably not a good choice in Wisconsin. Similarly, if your yard is shaded most of the day, don't choose plants that require lots of sunlight. Doing some research will require some time up front, but it can definitely save you money!

For $100 or less--

1) Create a welcoming entrance with a couple of large potted plants.
2) Plant a few trees.
3) Plant some wildflowers.

Remember to keep it simple--a few well-thought additions can make a big difference when you're trying to sell your house!

Spend a Little Now, Save a Lot Later--Routine Home Maintenance Tips

As healthcare costs rise, more and more people are talking about the benefits of preventative health care—exercise, healthy diet, etc. The same applies to your home; the better you maintain it, the less likely you are to have a surprise catastrophic event.  Here’s a list of things in your home that should be checked at least twice a year (unless otherwise noted) to keep things working the way they should:

 1.     Inspect water hoses on washing machine, dishwasher, and refrigerator icemaker for cracks. 

 2.     Test smoke and carbon monoxide detectors and replace batteries when necessary. Have working fire extinguishers accessible.

 3.     Have furnace, water heater, and air conditioning serviced yearly.

 4.     Drain water heater. This helps to clear any build up that may impede your water heater from functioning as it should—it should also extend its life!

 5.     Clear any debris from gutters and drainpipes. This is especially important in areas with freezing winter temperatures. You don't want an expensive repair and water (or ice!) damage to your home.

 6.     Clean humidifier and dehumidifier.

 7.     Clean fireplace and chimney. Have chimney inspected every few years or if you notice loose mortar or missing bricks.

 8.     Clean air filters and vents in your air conditioner, dryer, heating system, and fans.

 9.     Check foundation and basement for dampness or cracking.

 10.  Clean refrigerator/freezer coils, and make sure both seal properly.

 11. In addition to regularly clearing lint from your dryer’s lint catcher, scrub the lint catcher with warm soap and water a few times a year. Fabric softener makes your clothes feel soft and smell nice, but it builds up over time. An easy way to test this is to run water over your lint catcher—if it doesn’t drain through quickly, you’ve got buildup.

 12.  Clean your home regularly. Not only will this make things run more smoothly and make it a more pleasant place to live, you're more likely to notice things that need some attention.

    While this is far from an exhaustive list, here's a start. I'll add things as I think of them, and please feel  free to comment and add your own!

How to Stage Your Home for a Successful Sale

With such a glut of listings in the housing market, as a home seller, you need to do anything you can to set your home apart so it will be noticed. One big thing you can do is to stage your home well.  Here are some tips from HGTV.com on staging your home:

1.     Say goodbye to clutter: While you may be proud of your shot glass collection, to a potential homebuyer, it just makes your home look cluttered. Put away most of your collections, so your home doesn’t appear busy and cluttered. Furniture can also contribute to a cluttered look. This doesn't mean you need to strip your house to unusable bare bones, but even removing that one extra chair from your living room can make a difference.

2.     Pull the furniture away from the walls a bit. It makes the room look bigger. Use good judgment when doing this though—if pulling furniture away from the wall a bit means that you can’t comfortably walk through a room, don’t do it.

3.     Rearrange furniture: just because a piece of furniture was purchased for a specific room doesn't mean that it has to stay there. Experiment.

4.     Make spaces valuable: if there ‘s a room or area in your house that just gathers junk, turn it into a reading nook or small office space. Turn an unfinished basement into an exercise area with the addition of some padding on the floor. Use your imagination to figure out the wasted spaces in your home, and how you can utilize them to increase your homes’ value.

5.     Lighting: good lighting is hugely important in staging your home. If rooms are dim, add lamps or other accent lighting, and increase wattage in lamps and fixtures. As an added bonus, use compact fluorescent bulbs, which last much longer than traditional light bulbs, and are no longer much more expensive.

6.     Décor: a general rule to keep in mind is that groupings of décor look best in odd numbers.

7.     Flowers: If you have flowers or other plants in your yard that cut well, be sure to regularly stock your house with one or more arrangements. Something living adds a lot to a room.

8.     Bathroom: polish tile in the bathroom. Set out coordinating towels and candles to give a spa-like feel.

If you follow these tips, there’s no guarantee your home will sell but it will have a better chance. And if nothing else, your home will be more pleasant while you live there! 

Sinking Funds For Peace of Mind...and Wallet!

If you’re a homeowner, (or want to be!) you probably know that along with home ownership come some big expenses, both foreseen and unforeseen.  You can plan for both types of expenses using one or more sinking funds. 

For instance, you know that in five years your roof will need to be replaced. If you plan to have this professionally done, that can easily cost $10,000. For most people, that’s a large amount of money. If you don’t plan ahead, you’ll likely need to take a loan or tap into savings or retirement funds. But let’s look at the same scenario with a sinking fund. Ok, so five years out, you start saving for a new roof. You get paid bi-weekly. So how much would you have to set aside from each paycheck to save $10,000 in 5 years (interest aside)? $10,000/5=$2,000 per year. $2,000/26=$76.92 per paycheck, or $38.46 per week. If you eat fast food or drink expensive coffee regularly, you could easily pay for a new roof just by cutting back on those things.

Another instance where a sinking fund can be useful is to make up for varying utility costs. You can call your utility company and find out the average monthly utility cost for your home. Or better yet, find out the exact amount billed each month over the past twelve months. Divide that number by twelve and set aside that amount each month. If you can, deposit some extra money at the beginning of the year. You should accumulate enough extra during lower than average months to cover your expenses during higher than average months.  If you have a budget (which is an absolute necessity, in my opinion!) this will help to keep things smooth.

Some other examples where a sinking fund would be useful are homeowners insurance, car insurance, home remodel, and purchase of a new car. Really though, sinking funds can be used for just about anything. Whether they’re for  larger purchases, or small routine expenses, sinking funds can help to temper financial extremes, and give you some financial peace of mind.

Five Big Mistakes Homebuyers Make

Its easy to get caught up in the excitement of buying a home…imagining yourself and your family in your dream house, making it your own, all the little projects you’d like to do…but don’t get so caught up that you forget these five important things:

 1.     Home inspection: Yes, it’s a big deal, even if you’re looking to buy a brand new house. It will cost you a few hundred dollars, but it could cost you a whole lot more than that if you don’t get one, and then find out your home has major problems.

 2.     Budget: Unless you’re among the tiny fraction of people to whom budget is not an issue, don’t forget your budget when looking at homes. Don’t be pushed into buying something you can’t afford, or that you aren’t comfortable with.

 3.     Agreement with your spouse/partner: Don't go out and buy a house without being on the same page as your spouse or partner. Relationships are enough work without adding a long-term element of strife like a house.

 4.     Additional expenses: When calculating your budget, did you remember to add costs such as property taxes, homeowners insurance, mortgage insurance (unless you’re putting 20% down), and possibly increased utility cost if you’re moving into a larger home or to a climate that has significantly higher heating and cooling needs? What about a sinking fund for the new roof you’ll need in five years? You may be able to afford the principle payment on a house, but that’s far from the only cost you’ll need to pay.  

 5.     Location: Maybe you’ve found your dream home, but you have two small children and it’s on a very busy street. Or maybe its in an area hose climate would exacerbate a severe health issue you have. Location is important. Without taking it into consideration, your dream home could turn into more of a nightmare.

      While this isn’t an exhaustive list, keeping these things in mind when you’re in the process of buying a home will help you to stay on track, and keep the home buying process much more pleasant. 

Short Sales: They've Always Been Good, But Now Are They Getting Even Better?

For those looking to get a 20-30% discount on the purchase of a home, the short-sale market holds potential for some very good deals. Likewise, on a distressed property owner’s end, a short sale is a much better option than a foreclosure. Unfortunately, the price for some of those deals is mountains of paperwork, unresponsive banks, and an overall lengthy process. This may seem counterintuitive—shouldn’t banks be eager to sell these houses, rather than let them go into foreclosure, where they 1) often sit on the market for long periods, and 2) eventually sell for an even greater discount—i.e., banks get even less of the money they are owed? But I digress…

There may be some good news though. A new bill was introduced which would oblige mortgage companies to respond more quickly to inquiries about potential short sales.  The bill, aptly entitled, The Prompt Notification of Short Sale Act, would require mortgage companies to give a written response to home owners within 75 days about whether or not their home could potentially be sold as a short sale. This is also good news for potential buyers.

Currently, a short sale generally takes between four and nine months from start to finish. Because of the length of this process, it’s not uncommon for a home to be foreclosed on, even if a short sale is in progress. A shorter response time would potentially decrease the number of foreclosures.

Will the bill pass? Stay tuned…

Real Estate Season

Birds are singing, flowers are blooming, the sun has decided to make a more regular appearance…so what does that mean?

It’s real estate season!

Probably not what you were expecting me to say, but since we’re on the subject, let’s talk about it…

Relal esltate sealson [ree-uhl, reel ih-steyt see-zuhn]: adjective

1. A term used to refer to the time of year, primarily March through early August, when the greatest number of home purchases and sales occur. 

Now what we’ve established what real estate season is, let’s talk about what that means for you as a potential homebuyer or seller.

Buyers: First of all, as we enter real estate season, your choice of homes is likely to dramatically increase. The weather is getting nice, the school year is coming to a close, and you may have a tax return coming that could be a potentially used as a down payment.

According to Bankrate.com, the greatest number of home moves occur during the summer. As a potential homebuyer, this can be either an advantage or a disadvantage.  Due to the fact that there are so many more homes for sale during “real estate season,” your choices will drastically increase. This gives you a better chance of really finding a home you like. Unfortunately, there are also a lot of other potential homebuyers looking for homes as well, so if you find something you like, you may need to act quickly so you don’t miss out.

Sellers: For the same reasons mentioned above, real estate season is a great time to put your home on the market. Similarly, there are both potential advantages and disadvantages to selling a home during this time of year.  Due to an increased number of potential buyers, you may have more offers on your home, so you may be able to afford to be a little more picky about which offer you accept. But you also take the risk of being too picky, and not selling your home.

Do everything you can to put your home in “selling condition” (more on that later!) so that it stands out. Do a few things to increase your home’s curb appeal. Highlight the things about your home that would make it appealing to potential buyers. Does it have a great view? Make sure that’s not obstructed. Gourmet kitchen? Clean it up and really make it sparkle.  (“Freshly baked”—but not overpowering, smells don’t hurt either!) Swimming pool or Jacuzzi? Make sure they’re clean and at their best!

Regardless of whether you’re a potential homebuyer, or a potential home seller, know that this time of year holds some great opportunities. Take advantage of them!

The Big Mac Index

My goal for this blog, as the tagline says is to make “economic principles understandable to regular people.” And what’s more understandable than a Big Mac? Unless you’re a vegetarian…in which case, um…sorry.

In any case, in Economists’ long quest to make economic principles relevant, they’ve come up with something called the Big Mac Index, to measure what’s known as purchasing power parity. I dare you to say that ten times fast.

Basically, that’s a complicated sounding term that just means that you should be able to buy an identical good in two countries for the same price when the price is expressed in the same currency.

In Big Mac terms, if you were to travel to another country, you should be able to purchase a Big Mac for roughly the equivalent of whatever a Big Mac costs in the US.

So why does this even matter?

Big Mac Index

Well, the theory behind the index is that if you can’t purchase a Big Mac in another country for roughly the equivalent of the price that you can purchase it for in the US, the foreign currency is either overvalued or undervalued.

The implications of an overvalued or undervalued currency are a post for another time, but here’s a quick explanation. When a currency is overvalued, you’re paying too much for a Big Mac (or any good you buy!). If a currency is undervalued, you’re paying too little for a Big Mac.

The advantage to overvaluing a currency is that people who have that overvalued currency can buy goods from other countries very cheaply.

So, for example, we see that according to the Big Mac Index, Switzerland’s currency, the Franc, is overvalued. A Big Mac costs the equivalent of $6.81. If someone exchanged their Swiss Franc’s for United States Dollars, they could buy the equivalent of about 1.5 Big Macs. If they wanted to get an even better deal, they would exchange their Franc’s for an undervalued currency like India’s Rupee, and purchase just over 4 Big Macs. Sounds like a pretty good deal, eh? We’ll talk about the downsides of an overvalued currency later.

On the other hand, in a country with an undervalued currency, goods can be sold to other countries very cheaply. According to the Big Mac Index, India and China have undervalued currencies...those also happen to be two countries that the USA buys a lot of cheap goods from.

Anyway, back to the original point. The Big Mac Index may sound a little silly, but it’s a useful tool for gauging your purchasing power in other countries. 

Equality of Opportunity vs. Equality of Outcome

You may or may not have heard arguments over the concepts of equality of opportunity versus equality of outcome. Many of these arguments stem over the role of government—what is the government’s job—to provide equality of opportunity, or equality of outcome? (And no, the government cannot provide both—the two are mutually exclusive, but more on that later).

First, we need to understand what the terms equality of outcome and equality of opportunity mean.

Simply put, equality of outcome that the general living conditions, wealth, etc. of everyone in a society are similar. This involves redistribution of wealth from wealthier individuals to poorer individuals. So, everyone ends up basically the same.

In stark contrast, equality of opportunity means that everyone should be treated roughly the same. For example, job seekers are hired based on being the most qualified for a position, and are not discriminated against. You’ve probably heard the term “equal opportunity employer,”—well, that stems from this concept.

As you can see, the two are mutually exclusive—they cannot exist together.

The argument lies in one’s view of fairness, which can be looked at in terms of proportionality—so what does that mean?

Generally speaking, those with a more liberal political leaning view proportionality in terms of outcomes, and view disproportionate wealth accumulation as unfair.

Those who are more politically conservative view proportionality in terms of effort, where wealth acquired in a way that is proportional to effort is fair.

Many political and social ideologies have arisen because of these concepts—most notably, communism, socialism, and capitalism. We’ll discuss those another time, but for now, as you listen to presidential hopefuls, perhaps you’ll have a better understanding of some of their stances on economic and social issues. 

Case Shiller Housing Index....a crash course.

You may have heard the Case-Shiller Housing Index mentioned on the news. But what exactly is it, and why should you care? 

Contrary to its name, but Case-Shiller Housing Index is actually several indexes, including the national home price index, the 10-city composite index, the 20-city composite index, and twenty individual metro area indexes for the cities included in the 20-city composite index.

Aren’t you glad we cleared that up? [insert eye roll here]

Alright, let’s break it down.

National home price index—this is a quarterly index [published in February, May, August, and November], which covers the nine major census divisions, as pictured below.

Nine Major US Census Divisions

                   

10-city composite index—this includes Washington, DC, San Francisco, San Diego, Miami, Los Angeles, Las Vegas, Denver, Chicago, and Boston.

20-city composite index—this includes all the cities in the 10-city composite index, plus Atlanta, Cleveland, Charlotte, Dallas, Detroit, Minneapolis, Portland, Seattle, Tampa, and Phoenix.

All of these indexes except the national index are published on the last Tuesday of each month. There is a two-month lag with each publication, so, for example, the August publication only includes information through June.

Each index measures changes in the price of single-family homes, by comparing the difference between the most recent sale price and previous sale prices. 

The purpose of the index is to show whether home prices are going up or down, and by how much. Here’s why the Case-Shiller housing index is relevant to you—if you’re trying to sell your home, but the index shows that housing prices are going up, you might want to wait to sell. If you’re buying, you might want to hurry up so you can get a good deal. If the index shows housing prices going down, you’ll want to hurry and sell so you can get the highest sale price possible, and if you’re buying, you might want to wait for a better deal.

But what if you aren’t in the market to buy or sell a house? Is the index still relevant? Yes, because the Case-Shiller housing index is an indicator of how the economy is performing overall. For example, the index shows whether or not people are confident enough in the economy to make an expensive purchase. Much of the way the economy performs is a result of the way people expect it to perform, because generally people’s actions follow their expectations. But that’s another post…