Should I Buy A Home Now?

Should I buy a home now or should I wait for the market to cool a bit?  This is a question that I am frequently asked by buyers.  It is a valid question and one that should be considered.  What has happened to the market, if you have been looking for the last six months, in Northern Colorado? 

An image of money, showing the bottom line when considering should I buy a home now

In the last six months interest rates have gone up nearly 2 points.  Also prices have gone up 7 to 9 percent.  That means that you’re buying power is significantly diminished. In January and into February of 2022 interest rates were between 3% and 3.5%.  Now that same buyer is looking at interest rates at 5.375% to 5.5%.  That means the payment for a house priced at $425,000 has potentially gone up $110 per hundred thousand.  That can mean a house payment going from approximately $1750 to $2200.  That makes a heck of a difference!  This does not take into account the increase in prices that we have been seeing and how that would impact your payment.

Why Move Now?

Buyers that are in a position to make a move right now are encouraged to do so.  Interest rates are rising and are projected to continue that trend throughout 2022.  With interest rates creeping up and property values continuing to climb, waiting can cost you money.  It may just price you out of the market. Low interest rates and rising home values make for an opportunity.  Since 1988 rent has increased at a rate of 3.5% per year, according to the National Association of Realtors.  If you owned a home, priced at $425,000, after 5 years of ownership you will likely have over $165,000 in equity. If you are paying rent, on that same home every month you are not earning $165,000, instead your landlord is.

Should I Buy A Home Now: Supply and Demand

In Northern Colorado the demand continues to outpace supply.  This is supply and demand.  Too many buyers, plus not enough homes, equals rising home prices. It is a good idea to take this time, make a plan and budget for a purchase.  Meet with a recommended lender and verify that your credit is clean and you are ready to buy. Do an application and lock your rate now.  Bottom line is that interest rates are going up, they could come down some but home prices will continue to rise.

Contact us today if you have questions or if you are ready to begin the home buying process.

What is an Appraisal Gap?

Bridging the Appraisal Gap

So what is an appraisal gap? In today’s hot real estate market buyers often write a contract for more than asking price. They do so in hopes of having their offer be the highest and best offer that a seller receives on their home.  The buyers love the home and want to ensure that they get to move into this home that is the home of their dreams.  So instead of offering the asking price of the home which is $425,000 they instead offer $450,000.  The seller accepts the offer and the buyer and seller are under contract. 

How Value is Determined

During the under-contract period the lender, for the buyer, will order an appraisal.  The appraiser will come view the property and complete a report that compares the subject. They will also look for under contract properties. Finally, they will compare these with other homes that have recently sold in the area. All of this takes place to arrive at an appraised value for the property.

Making Sure the Seller Gets Their Money

The appraisal gap occurs if the appraiser appraises the value of the home as less than the contract price that the buyer and seller have agreed up on.  So, let’s say that the property is under contract at $450,000 and the appraisal comes in at a value of $430,000.  There is a gap of $20,000 in this example.  This means that the buyer and seller have to renegotiate the price of the home or the buyer needs to bring an additional $20,000 to closing that was not a part of their down payment or reserves.  Sometimes, in today’s hot real estate market, buyers say that they will cover the appraisal gap. That means that they will pay the contract price for the property no matter what the appraisal comes in at and there will be no need for the buyer and seller to renegotiate the price of the property. 

Sometimes an Appraisal Gap Falls Short

Other times a buyer’s contract will state that the buyer will cover a certain amount of gap.  For example, the buyer says that if the property does not appraise, they will bring an additional $10,000 to closing.  Let’s use the property that was under contract at $450,000 and appraised at $430,000. The buyer would bring $10,000 to closing and that would make up only $10,000 of the $20,000 gap between the appraisal and the contract price.  The buyer and seller would have to agree what would happen with the $10,000 difference. 

Make it Appealing

A contract that is written covering any appraisal gap can be a huge benefit to a seller.  They do not have to worry about what the appraiser says the value of the home will be.  The seller has peace of mind that the contract price is what the buyer will pay no matter what. For a buyer that really wants a particular home it might be wise to include appraisal gap verbiage in the contract. This gives the seller that peace of mind. It also makes the buyer’s offer as attractive as possible to the seller. 

If you have any questions about how to make your offer the most competitive in today’s market contact us. We would love to help you navigate the intricacies of the real estate process.

A Northern Colorado Housing Bubble 2022?

Will there be a Northern Colorado housing bubble 2022?

This is a question that I am frequently asked. Articles like this one from the Denver Post seem to be published every week. But just what would a Northern Colorado housing bubble 2022 look like? A housing bubble is a temporary period of time that is characterized by high demand and low supply. This causes a boost in pricing. A housing bubble can be caused by a combination of low interest rates, economic prosperity and easy access to credit.

So, what is the concern with a housing bubble?

The concern is when speculators enter the market. This causes a boost in demand over and above “real” buyer demand. Speculators can be investors from out of the area and even fix and flippers. This causes an already tight market with limited supply to have even higher demand, pushing housing prices even higher. The price of housing, like any good in a free market is driven by the law of supply and demand. When the demand increases the price goes up. When the price of housing is going up faster than expected, many people fear that a Colorado housing bubble is about to burst and prices are going to come crashing down.

Is that the case in 2022? I would say that this is not likely. I see some major differences between 2022 and our last housing crisis.

What are the major differences?

1) Mortgage lending practices that brought down some of the major banks and mortgage companies during our last financial crisis have led to many regulatory changes. Federal regulators have new stricter requirements of borrowers and new requirements of lending intuitions. The Consumer Financial Protection Bureau was created to enforce these new regulations. Because of this the housing market is safer than it was 15 years ago.

2) In 2007 and 2008 the market in many parts of the country was flooded with foreclosure homes. This caused falling prices of homes. The pandemic has caused mass unemployment. However, the forbearance programs have allowed homeowners to postpone their monthly payments without penalties. Many of those unemployed homeowners resume their mortgage payments as they again become employed, avoiding foreclosure.

3) One of the major differences between the housing crisis and the pandemic is that homeowners today have EQUITY in their homes. This could prevent a Colorado housing bubble 2022 Equity is the difference between the current market value of your home and the amount that you owe on your mortgage. As prices have rises your equity increases too. During the housing crisis many home owners had the amount of their home value less than what they owed on the home.

No one can predict what will happen for sure but it is not likely that there is a Northern Colorado housing bubble in 2022. Low interest rates and demand have certainly driven prices up in 2022. You can always contact us for a free market analysis to find out where you stand. In the meantime hold on for the ride to see where we go for the rest of 2022.

Rent Vs. Buy Which is Better?

The Advantages Of Home Ownership:

  • It’s your place. You can decorate the way you want.
  • Homes typically increase in value and build equity. Additionally, owning a home is one of the best ways to build long term wealth.
  • Your costs are more stable then renting. Rent costs typically increase a minimum of 3% per year.
  • Interest and property taxes are tax deductible. Additionally, owning a home does offer many tax advantages that can save you money.

The Disadvantages Of Home Ownership:

  • You are responsible for maintenance of your home. This can be as simple as a toilet repair or as complex and expensive as a roof or furnace replacement.
  • Owning a home is a long term financial commitment.
  • Owning ties you to a location. Moreover, it makes it hard to just pick up and move.

Let The Math Do The Talking

In most situations if you plan to stay in the area it is better to buy instead of rent. If you need to figure out whether buying is best in your situation this rent vs buy calculator will help you decide. You have learned what it takes to buy a home, now it is time to get ready to do so. Before doing anything else you must get your finances in order:

  • Pay down your debt.
    • Pay off your credit cards, car loans etc. Your total debt should be no more than 38% of your income.
    • Once you pay off credit cards make a habit of paying them in full every month. Do not carry a balance on your cards.
  • Get your down payment together.
    – Start saving.
    – Ask for a gift (talk to that rich uncle).
    – Pay yourself first. Deposit a predetermined percentage in your savings account, then live off the rest of your paycheck.
  • Clean up your credit.
    • You generally need a credit score of 650 to get a mortgage. The higher your credit score the lower your interest rate will be. The lower your interest rate the lower your monthly mortgage payment
    • Repair bad credit, talk to your mortgage loan officer about how to do this.
    • Establish credit if you don’t have any. Talk to your mortgage loan officer for tips on how to establish credit.

Contact us and when can help you get started today.


Capital Gains When Selling A House

Capital gains when selling occurs when you sell real estate for more than you paid for it. The difference between the original sales purchase price paid and the new sales price is the gain. In other words:

New sales price, minus purchase price of the property, minus the cost of sale = the amount of gain on the property.

This calculation can mean that most all sellers that are selling their home in Northern Colorado would show a gain on their property. Our market has seen nice appreciation of property values in recent years and this can lead to nice gain when it comes time to sell. It is great to sell your home for top dollar, but the IRS may want a piece of the gain that you receive.

What situations do you have to pay capital gains when selling?

The government allows you to exclude $250,000 in gain for an individual home seller and exclude $500,000 in gain for a married couple. For example, lets say that you bought a property 10 years ago for $250,000 and sold the property for $850,000. You are a married couple, filling your taxes jointly, selling your home that you have lived in the home for all of the last 10 years. First, you subtract the $250,000 from the $850,00 and the number is $600,000. You are allowed by the IRS to have $500,000 in gain so you will only pay taxes on the $100,000 which is over the $500,000. How bad might the taxes on that $100,000 in gain be. There are factors that the IRS takes into account when figuring but for a rough estimate the tax could be between 10 and 20 %.

In order to be able to exclude the gain, like in the example above you need to have:

  1. Lived in the home for at least 2 of the last 5 years.
  2. The home needs to have been your primary residence.
  3. You can not have claimed that you sold a primary residence in the last two year period.
  4. If you are selling your home in less than two years, but moving due to work, health or an unforeseeable event, you still might qualify!
  5. You also may be able to minimize your capital gains tax if you are able to show receipts for home improvements.
    If this sounds complicated it really might be. This might be the year to have a CPA do your taxes. The money spent to have a professional review your tax situation might be small in comparison to the amount you save in taxes paid.

Contact us if you have specific questions about capital gains when selling a house.

Fort Collins Real Estate Market

The question that I get asked the most is, “how is the market”.  When there are things happening in the world, country and our area I hear that question even more.  People want to know if their investment is being negatively affected. Going through a global pandemic has folks asking that question even more.  In a word, the Fort Collins real estate market is GREAT. Prices continue to grow year over year in all segments of the market. This means that if you own a condo or a home you have likely seen a substantial amount of appreciation in your investment.

Median year to date home prices in Northern Colorado, through July 2020.

We are on track to see nice appreciation in the median price of all types of properties in Northern Colorado this year.  Days on the market has increased this year, but list to sales price remains strong at over 99%.  It is a great time to own a home in Northern Colorado. Remember if you have questions about the Fort Collins Real Estate Market, just call, text or email me.  The most current Fort Collins real estate numbers are available from the Fort Collins Board of Realtors. You can also contact us for a personalized home valuation.