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.