Save more, spend smarter, and make your money go further
Who needs hotels anymore? One of the internet’s greatest travel perks is that it’s much easier for those looking for a place to stay to connect with someone who has a room to spare.
Rental sites like Airbnb.com let anyone put their spare couch, bed or house up for rent. The upsides for hosts: Greet people from all over the world, and pocket some cash for their efforts. The benefits for guests: Stay at unique places for a fraction of the price of a hotel room.
But staying at someone’s home isn’t quite the same as a hotel. There’s etiquette for both host and guest to follow so that both parties get the most out of the experience.
For Hosts:
Charge less first, then raise your rates, but be realistic. Figuring out how to price your place can be tricky. Charge too much and you won’t get any bookings; charge too little and you won’t be making as much as you could. Keep in mind that Airbnb earns its cut by doing a 6 to 12 percent markup on the listing price, so if you list a room for $100, Airbnb lists it for $106 to $112 and takes that extra money. But because it can be tough to get bookings on a site like Airbnb without a solid base of reviews, you may want to undercharge at first.
Jane Hodges, a business journalist whose new book about renting versus buying a house will be published this spring, listed the basement of her West Seattle home in April. Initially, she charged $55 per night and immediately got a ton of interest. Now her rate is $61, with a two-night minimum. She probably could charge more but the basement is not completely finished, particularly in the walk between the bedroom and bathroom, and she’s upfront with guests about that.
Chris Williams, a retired teacher in the former gold mining town of Nevada City, California, decided to list the granny flat and a few spare rooms in her home on AirBnB to create extra income. She, too, started low on the pricing, but as her guests left rave reviews on the website, her rooms started showing up higher on the search listing, and she eventually had a full calendar of bookings. Still she keeps her rates lower than she could — $35 to $45 per room, with a two-night minimum – because the kitchen, living room and outdoor patio are all common areas, and she doesn’t serve meals. “I realize that the rooms aren’t as private as hotel rooms, so I don’t feel I can charge as much.”
Use the professional photographer. Airbnboffers to send one to new listings so that quality photos of your room appear on the site. Both Hodges and Williams had photographers who routinely shoot for realtors’ property listings come to their homes. Take advantage of that. Because the photographers know what they’re doing, they generally will do a better job emphasizing the assets of your home better than you can. Also, Airbnb-commissioned shots feature a “Airbnb.com Verified Photo” watermark on the site, which makes potential guests believe that your killer apartment actually exists.
Consider a two-night minimum. Of course, if you’re starting out as a new listing, it’s wise to go short to build up your list of reviews. Once you earn those, it’s better financially to go for longer-term guests. “I’ve turned down requests for people who need a place to stay for a night, will arrive at 11 p.m. and leave for the airport at 6 a.m. Ditto for people who want the place on the same day. It takes time for me to get the place ready — wash up, dust, vaccum, shop for breakfast” says Williams. It’s not worthwhile to do that day-in, day-out, especially if you’ve got a life, and daily maintenance will eat into those rental fees.
Ask guests to contact you first. Atthe top of your listing, ask that people send you a note inquiring about availability before trying to book. This serves as a test for whether they actually read your listing before attempting to book, or were simply dashing off requests to everybody in a five-mile radius. It also allows you to communicate with potential tenants, so you can decide whether or not you feel comfortable taking them as guests. But respond to every message, even if it’s only to say that your place isn’t available. Airbnb tracks and publishes what percentage of messages you reply to as your “Response Rate,” so having a high number makes you look like a more receptive host, and it puts you higher up in the search rankings.
Fill out a detailed profile. That means a real photo of you (smiling, of course), and a bit of information about who you are. A filled-out profile reminds potential guests that you’re a real person. Also, make sure you list your neighborhood. Airbnb listings allow you to tag your place by neighborhood. It allow users who are searching for particular neighborhoods (say, the neighborhood of Williamsburg in the vast borough of Brooklyn) to find you.
Screen potential guests. If somebody who contacted you via Airbnb has no reviews or an incomplete account, ask them to send a bit of info about themselves. You want to know as much about a potential tenant as possible because you are letting them into your home, after all.
Also, you want to make sure it’s a good host/guest fit. Some hosts like to hang out with their guests and show them around town, other prefer that guests be as self-sufficient as possible. Williams is the former. She asks guests what brings them to town, so she knows what advice to give them to make their trip more fun. “I’ve found that just about everybody is happy to share that info. If they refuse or ignore the request, I consider that a warning sign, and I move onto the next person.”
Offer the basics. Good linens and towels (including washcloths) are a must. Hodges recommends good bedside lighting and a table or stand to put a book and a glass of water down on at bedtime. She also includes a coffeemaker and a cold breakfast of granola bars and fruit (cheap and easy to purchase). Williams puts hairdryers in every room, and takes mini bottles of shampoo and conditioners from her hotel trips to put in her guest bathrooms. “I can’t tell you how many guests told me that I just saved them luggage space. Anything you can do to lighten their luggage load is a plus, and makes them feel like they are staying in more of a hotel-like environment.”
For Renters:
Do not try to book without communicating first. Airbnb is not Expedia or Travelocity. Just because a date appears to be available on the calendar does not mean you can stay there that night. Message the host, introduce yourself , tell them what brings you to town, then ask politely if your requested dates are available.
Read the entire listing before messaging. Don’t waste the host’s time by asking questions with readily available answers like “are you near the airport?” or “do you have a kitchen?” You look like a undesirable guest and you’re far more likely to have your request rejected. “I don’t want to be their mom,” says Hodges. “If they book decently in advance and do research on the area, I am happy to fill out the cracks.”
It’s not a hotel. That means you should have some basic courtesy when it comes to cleaning up after yourself and making noise. Remember that your hosts have lives, too. One of Hodges’ biggest annoyances is guests who don’t say what time they’ll arrive. “Some people are not specific when they’re coming, so I’m stuck in the house waiting for them. Now when they book, I ask them to give me a two-hour window so I know what time to be here when they arrive.”
Williams’ pet peeve is guests who bring “extra guests” home at night. “You’re a few steps up from being a stranger in my home. I don’t want total strangers as well.”
Fill out your profile. The same rules apply to guests as hosts. “If your profile makes you look friendly and decent, I’ll usually allow you to book,” says Williams. That means a real (non-threatening) photo of you, and some information about who you are and where you’re coming from. More than anything else you do, this will raise the percentage of your reservation requests being accepted.
Vanessa Richardson is a freelance writer in San Francisco who writes about small business and personal finance.
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This is Jeff Rose, goodfinancialcents.com. Welcome everybody! I have a little neat, exciting thing to share here. I was interviewed by Laura Adams a.k.a. The Money Girl. She is actually a contributor to the blog, goodfinancialcents.com so be sure to check for her articles. I had the pleasure of being interviewed by her for a little Skype interview that we did. This was our first attempt. We had a little static near the end but we are learning. I’m getting all my technical glitches out of the way. She interviewed me about interviewing a financial planner for your own services. At the end I shared some tips of the five mistakes to avoid when saving for retirement or financial planning. Be sure to check out the interview. Hope you enjoy. See you later.
LAURA: Hi everybody. This is Laura Adams from The Money Girl podcast and author of Money Girl: Smart Moves to Grow Rich. Today I am here with Jeff Rose. I am so excited to be interviewing him. He is a financial planner. He has a business that is called Alliance Wealth Management. I thought it might be a good idea to find out from Jeff what some of the typical questions are that he gets about financial planning. Jeff, why don’t you start out and just tell us what you do and what type of customers you have?
JEFF: Sure. I have been a financial planner for just over eight years or so and along the way I’ve helped many different types of clients. Being younger, I got started in the business when I was 24 so I had a lot of younger clients that just wanted to start saving for retirement, start saving for their kid’s college education. Also, I had a lot of the baby boomer generation that were approaching retirement and had a large nest egg like their 401K or their pensions that they’d been saving into their entire lives and now they had the biggest decision money wise to make in their lives what to do with it. They entrusted me to basically devise an income plan for them with that money so that they wouldn’t out live it. That is really where, I wouldn’t say my focus has turned, but just my clientele has turned that way through referrals and through all the different events that I do. Right now I service probably about 80% of the baby boomer plus generation. Most of these individuals I would say are people that know they need to be invested. They know they need to be in the market in some way just to keep up with the cost of living and to keep up with their desires in the golden years. They just don’t have the time and they really don’t trust themselves with that amount of money so they want to rely on an expert like myself. I say expert. I’m not trying to toot my own horn, but they want to rely on a professional to take care of them.
Who Needs a Financial Planner?
LAURA: Absolutely, yeah. I’m curious what your opinion might be about whether everyone needs a financial planner. Does everyone need one or are some people able to do it themselves?
JEFF: That is a great question. I actually just took a poll of my email newsletter because I was really curious. I just had a hunch. I talk to people all the time that don’t have a financial advisor. They’ve been doing it on their own or they are not doing anything at all. I really was just curious so I emailed my subscribers just curious to know the feedback. The questions I asked were: Do you have a financial advisor. Yes or no. Why or why not. Of all the people that responded there was only about 30% or so that had a financial advisor. That was kind of my hunch thinking that most people don’t. The most common reason was trust. They didn’t trust them. They maybe had some bad stories from friends or family members or they had a personal experience where they had a financial advisor that sold them something that shouldn’t have been sold to them, and they just didn’t trust that direction. Other people just didn’t know if they needed one yet. They didn’t feel like they had enough money to get started. I think in all those situations, maybe you don’t need a full-time financial planner to manage the investments on an ongoing basis, but I think it’s like a doctor relationship. You don’t need to go to the doctor every single day, but it’s always advisable to go in at least once a year to have your annual checkup. Why wouldn’t you do that with your financial life just to make sure that what you have in your 401K is where it needs to be. Make sure that whatever investments you’ve been doing in your own brokerage account are in the right funds, stocks, or ETFs. Make sure you have enough life insurance. I think everybody needs to have some type of advisor, maybe not an ongoing basis, but at least someone to checkup on and give them that annual checkup.
Different Types of Advisors
LAURA: Yeah, that’s a good way to put it. What are the different types of advisors that people might find out there if they go online and do a search for somebody? Tell us a little bit about the different types of advisors that people maybe would or wouldn’t want to use depending on their situation.
JEFF: It gets so confusing now because right now everybody is a financial advisor. Everybody has that title. They used to be a stock broker, investment advisor, insurance agent. Right now I talk to everybody and they say I’m a financial advisor. I’m like what does that really mean? The different types would be if you go to a financial advisor at an insurance company or insurance agency. It has just been my experience that they are just going to lead in with some type of insurance product. That could be an annuity. It could be some type of whole life or cash value life insurance. Personally I’m not a big fan. I don’t want to start harping down on that, but those are the ones that I would stay away initially. I’m not saying life insurance is bad. Just be conscious of what their pitching to you and what they are trying to put you into. If you go to any type of big brokerage firm it could be anywhere from a commissioned advisor where they are going to sell you a mutual fund or an ETF, and they are going to earn a commission off that product. They also could have a fee-based relationship or advisory relationship where you are paying an ongoing fee, a percentage of your total investments with them. Just make sure you are clear on that. Where the waters get muddy there is you might pay an ongoing fee for your account with the firm, but there also might be transaction charges within the account. There could be internal expenses within the investments that you own. The next thing you know you think you’re paying 1% and you’re really paying 2½% and that really starts eating away at your money and it’s hard for you to grow it. That’s why my heart goes out to the consumer because there is so many different ways. If you don’t ask the right questions, if you don’t know what to ask, you’re just basically at the mercy of this advisor. Just be abreast of that. The last one -we talked about doing the annual checkup- there are a lot of fee only advisors that basically just charge you by the hour. These are the folks that will just meet with you and analyze your situation and give you a game plan. I think maybe even a financial coach maybe would fall in that category of someone just giving them guidance on where they need to be.
LAURA: Great! So what type of advisor are you? Tell me a little bit about how you or your firm charges people. What’s a typical customer’s fee structure, or what compensation do you get for a typical customer?
JEFF: Sure. That’s a great question. Just to give you an insight, I worked for the big brokerage firm so I’ve been that direction. I know that structure. Then we left and we started an independent firm. When I became independent I had the ability to do commission, and I had the ability to do fee. I was doing that for about three years, and the conversations got so confusing because it depended on the client and their situation. I liked it because in some cases maybe a commission relationship was better for the client if they weren’t doing a lot of active trading. They just bought one thing every once in a while. The majority of my clients I did on the advisory relationship, the fee based where I was managing their portfolio helping derive income stream. Whenever I was having that conversation with people I was like here I’m doing this and here I’m doing this. I just got frustrated with it and really wanted to have a more stream lined presentation or approach when talking to people. Recently, I just created my own registered investment advisory firm where now it’s completely a fee-based relationship. The fee ranges anywhere from 1-1½% as my ongoing fee. That is all encompassing. There’s no more transactions charges. There’s no IRA fees. At this time that covers doing a financial plan for the client and updating that on an annual basis. Basically the client can call me, not preferably on the weekends, but they can call me whenever they need to if they have a question about anything. I help clients figure out how much they need to save for their kid’s college. I’ll take a look at their 401K. That’s not even part of what I’m managing, but I’m going to take a look at it for them just to make sure it’s where it needs to be.
The Big Misconception
LAURA: Excellent! That actually sounds like a pretty good deal compared to some of the fees that I’ve heard. As a registered investment advisor what type of responsibility do you have to the client? There’s a lot of confusion in the market place about what is a financial advisor’s responsibility versus a broker’s responsibility in terms of recommending a stock or an exchange-traded fund. I think it’s important that people get to know an advisor who can give them some level of responsibility versus just throwing out a stock here and there as a good pick that they think is hot right now.
JEFF: The big thing, the consumer may never understand this, I know the profession or our industry is trying to do a better job of making them understand, but basically the two key words here are suitability and fiduciary. With the previous relationship it was more of a suitability issue where I would take a look at a client’s situation and then I would recommend an investment that I felt was suitable for their needs. It may or may not have been the right thing, but that is what I felt based on the situation. Now as a registered advisor, as a fiduciary I am solely responsible for my client’s best interests. I have to make sure I am doing what is absolutely right for them and I am absorbing that role. Before I did an RIA I saw that word thrown out there a lot and know a lot of other RIAs were throwing it out there and I’m like what does that really mean. Now that I finally get it and grasp it it’s really important to me. When I talk to other attorneys and other professionals and you talk about the word fiduciary to them they get it. They understand what that means and that client-advisor relationship. There’s a tremendous level of respect for it.
Women and Investing
LAURA: Yeah, I come from the real-estate world years ago and fiduciary relationships with clients were very important in that industry as well. So yeah, I want to make sure everybody gets that. If you go to a broker, they may or may not have a responsibility to look out for your best interest basically, but a registered advisor (RA or RIA), that’s part of the title. That’s part of the designation, that they have a higher level of responsibility. I think that is a great designation to look for in an advisor.
Also Jeff, I wanted to ask you maybe a little bit about the differences you see in men and women that come to you. I get a lot of questions, different types of questions from men and women about finances and planning, and I am wondering if you see a big difference working with a couple or just a husband or just a wife. Is there a big difference in the way that men and women approach money and financial planning?
JEFF: Yeah, there is much more to it with women and financial challenges. Not to say it’s 100%, but it’s so funny when I look at my baby boomer generation of husbands and wives versus the Gen X generation of clients husbands and wives. In my baby boomer generation I have husbands that worked 10-12 hour days, and the wife was the homemaker where they basically have relied on the husband to make all the big money decisions. I always make sure I bring in both clients. She’s still a part of the equation because that is the root of happiness or unhappiness if we haven’t had the proper discussion. I want to make sure I want to understand what her thoughts and concerns are. For the most part they’ve relied completely on the husband. Whereas my Gen X I’m seeing more of the wives now having more of a say in the money matters. The experience I’ve had in my own office is where wives are now saying we need to do this, we need to do this. I think that sound good, that sounds good, but I see more of a leadership role than I have ever seen before, especially with the baby boomer generation. I think that is neat to see that.
LAURA: Yeah, it is. I do a lot of one on one coaching with folks and the majority of them are women who tend to be, like you said, taking more of a leadership role for whatever reason. Maybe they are going through a divorce or they’re just waking up and realizing hey, I need to be involved. I need to know what’s going on for my best interests. I think it’s great that younger women and younger couples are approaching money much differently than older generations, and it’s a really good thing.
JEFF: Another thing I will say I have noticed, and I think it is pretty well universal is that women generally tend to be more conservative in their investment tolerance. Even in that leadership role the husband wants to make 12-15% return whereas the wife generally is more on the conservative side, which could be good or bad. I just want to make sure we’re where we need to be. That’s another thing I have noticed is that women are generally more conservative.
LAURA: Yeah definitely. I think women have that bag-lady syndrome fear that we always hear. Sometimes women are really afraid of the consequences of poor planning. That’s a wonderful thing, but you can take that to an extreme where you don’t invest aggressively enough and therefore, you’re not going to hit your retirement goal. I think having a balance there between a man and a woman’s perspective really probably ends up helping overall if you blend both of those perspectives. That’s great if people work on money together.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.
One popular way people pay off debt is to use the equity in their homes. Home equity loans and home equity lines of credit (HELOCs) let borrowers use their homes as collateral in exchange for financing. Just be sure to factor in the risks if you’re considering this option. The lender can seize your home if you can’t make the payments.
Who this is best for: Borrowers who have built up equity in their homes.
Who this is not good for: Those unsure of their ability to maintain the monthly payments.
Home equity loan versus debt consolidation loan: Home equity loans and HELOCs may offer lower rates than debt consolidation loans, though they come with more risks, since your home is used as collateral.
Debt relief services
Debt relief services, including debt settlement companies, offer another way to deal with your debt if you can’t qualify for a consolidation loan. These companies reach out to creditors and debt collectors on your behalf and try to settle the debt for a lesser amount.
If you decide to pursue debt relief services (perhaps as an alternative to bankruptcy), be aware that the fees these companies charge can be steep. Take your time to fully research fees, reviews and other details before applying. It’s also wise to compare multiple debt relief companies before you commit.
Who this is best for: Borrowers who are experiencing financial hardship and cannot pay their debt.
Who this is not good for: Those with a thin credit history or less-than-stellar credit score.
Debt relief services versus debt consolidation loan: Unlike debt consolidation loans, debt relief services aim to eliminate some of your debt without you having to pay it. With that said, pursuing debt relief is a risky move, and it can damage your credit score.
Credit counseling
Another option that can help you get debt under control is credit counseling. Credit counseling companies are often (though not always) nonprofit organizations. In addition to debt counseling, these companies may offer a service known as a debt management plan, or DMP.
With a DMP, you make a single payment to a credit counseling company, which then divides that payment among your creditors. The company negotiates lower interest rates and fees on your behalf to lower your monthly debt obligation and help you pay the debts off faster.
DMPs are rarely free, though, even if they’re done by a nonprofit credit counseling service. You may have to pay a setup fee of $30 to $50, plus a monthly fee (often $20 to $75) to the credit counseling company for managing your DMP over a three- to five-year term.
Who this is best for: Borrowers who need help structuring their debt payments.
Who this is not good for: Those with little wiggle room in the budget.
Credit counseling versus debt consolidation loan:With a debt consolidation loan, you’re in control of your payoff plan, and you can often apply with few fees. With credit counseling, a third party manages your payments while charging setup fees.
Balance transfer credit card
With a balance transfer card, you shift your credit card debt to a new credit card with a 0 percent introductory rate. The goal with a balance transfer card is to pay off the balance before the introductory rate expires so that you save money on interest. When you calculate potential savings, make sure you factor in balance transfer fees.
Keep in mind that paying off existing credit card debt with a balance transfer to another credit card isn’t likely to lower your credit utilization ratio like a debt consolidation loan would.
A debt consolidation loan is also going to offer higher borrowing limits, enabling you to pay off more debt, as well as fixed monthly payments, which make it easier to budget and stay disciplined with paying off debt.
Who this is best for: Borrowers who can pay off existing debt quickly.
Who this is not good for: People with a young credit history or a less-than-average score.
Balance transfer credit card versus debt consolidation loan: Balance transfer cards are often the best choice for borrowers who have the means to pay off their debt within 18 months, which is a standard 0 percent APR period. If you need longer to pay off your debt, or if you have a lot of debt, a debt consolidation loan is a better choice.
There were a few rate friendly tidbits buried in the CPI data, but for the most part, it was right on the screws versus expectations. For those wondering about the tidbits, the core services prices excluding housing/rent declined noticeably. The market reaction tells us the report was clearly “good” for rates, but was it enough to change anything in the bigger picture? The unwillingness to rally past any range boundaries tells the story there. Hurry up and wait for a collection of multiple additional economic reports spaced over a few months that cohesively suggest a shift. Wish we could tell you how long you’ll be waiting…
Core M/M CPI
0.4 vs 0.4 f’cast, 0.4 prev
Core Y/Y CPI
5.5 vs 5.5 f’cast, 5.6 prev +
09:15 AM
Moderately stronger after as-expected CPI. MBS up just under a quarter point. 10yr down just over 5bps at 3.47
12:26 PM
Sideways to slightly stronger since the data. An odd set-up for a 10yr auction. 10s currently down 7.5bps at 3.449. MBS up 10 ticks (.31).
01:06 PM
Not much of a reaction to 10yr auction. 10s down 7bps at 3.453 and MBS up 10 ticks (.31).
02:51 PM
Sideways to very slightly stronger. 10yr down 8.5bps at 3.439 and MBS up 3/8ths.
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Since 44.4% of the Consumer Price Index is shelter inflation, it’s a massive deal in economics that rents took off in the last two years. Without rents taking off, the CPI data would look much more tame, like what we saw from the years 2000-2019.
As you can see in the chart below, core CPI wasn’t exploding at all this century until COVID-19 hit us. More supply of apartments coming on line will be good news for mortgage rates going forward. The history of global pandemics has always been inflationary early on, as the production of goods gets hit immediately. Then things tend to cool down over time from their inflationary peak level.
Over the next 12 months, the CPI data will account for the real-time cooling down of shelter inflation. And just like the data lagged early on when shelter inflation took off; the opposite will happen over the next year.
Tuesday’s housing starts data does show some promise on the front of attacking inflation and helping lowering mortgage rates, so let’s look at the report and find out what I am talking about.
First, however, remember that the housing market is still in a recession, which I wrote about on June 16, 2022. Housing permits have been falling as the builders simply have too much supply to be confident in building homes again. The housing market is still in a recession until housing permits rise in duration. Even though the builder’s confidence index has been rising recently, it still hasn’t led to a significant uptick in housing permits.
From Census: Building Permits Privately‐owned housing units authorized by building permits in March were at a seasonally adjusted annual rate of 1,413,000. This is 8.8 percent below the revised February rate of 1,550,000 and is 24.8 percent below the March 2022 rate of 1,879,000. Single‐family authorizations in March were at a rate of 818,000; this is 4.1 percent above the revised February figure of 786,000. Authorizations of units in buildings with five units or more were at a rate of 543,000 in March.
As you can see in the chart below, this looks nothing like the housing peak in 2005 and the crash toward 2008. Back then, housing permits were collapsing as new home sales fell 82% from the peak. Currently, new home sales have been trending better as the builders are taking advantage of low existing inventory. Of course, once we get lower mortgage rates, that should help the builders sell more homes.
The big difference in this housing recession versus other cycles is that housing completions are still rising, which is unusual. However, because of the COVID-19 delays, we are still working through a backlog of homes under construction.
From Census: Housing Completions Privately‐owned housing completions in March were at a seasonally adjusted annual rate of 1,542,000. This is 0.6 percent (±13.3 percent)* below the revised February estimate of 1,552,000, but is 12.9 percent (±18.6 percent)* above the March 2022 rate of 1,366,000. Single‐family housing completions in March were at a rate of 1,050,000; this is 2.4 percent (±12.4 percent)* above the revised February rate of 1,025,000. The March rate for units in buildings with five units or more was 484,000.
As you can see below, completions are like a slow-moving turtle, but they are still rising, so while housing permits are falling, consistent with the housing recession, housing completions are a different story.
Now the data line that excites me the most, of course, is shelter inflation, meaning the growth rate of rent inflation, because it’s cooling down already. This is something I talked about on CNBC last September on the day the CPI report was being reported.
As shelter inflation and wage growth cool down, we are adding more supply, not subtracting. This is key for mortgage rates looking out for years to come. As you can see in the chart below, we have a historic number of 5-unit construction in the works. This is the best way to fight inflation — with supply, with more choices, and landlords having to compete with more supply, preventing them from raising rents faster. The goal should be getting these units out as fast as possible.
One thing that will likely happen soon is that 5-unit builds under construction will start falling, such as we see with single-family homes under construction. With the Federal Reserve wanting a job-loss recession and banking credit getting tighter, apartment construction should fall like it did in the recession of 1974. I just hope it doesn’t collapse down like it did in the recession of 1974. As we can see in the chart below, the single-family units under construction are already falling as they should.
While the housing starts data doesn’t look like too much is happening and still has a recessionary vibe, we have some positive data in these reports.
As the cost to borrowers rises and credit gets tighter, we should be grateful that we have many apartments under construction. Just imagine if rental inflation wasn’t cooling down in real time, and we didn’t have these apartments in the works — it would look like the 1970s again.
That is the last thing the housing market and the U.S. economy need, rent inflation taking off as it did in the mid and late 1970s. This would mean mortgage rates have room to go higher and stay higher.
As you can see in the chart above, after the burst in housing inflation coming from the 1970s, things started to calm down. You can also see why and how inflation wasn’t a problem this century until COVID-19 hit us. That is the history of global pandemics, inflation data gets wild as supply chains are broken, and then things get back to normal over time.
I’ve written about the importance of credit scores before, especially when it comes to getting a mortgage, mentioning that you could save tens of thousands of dollars if you simply had excellent credit.
Fortunately, it appears that the general public is aware of this, per a new study from credit bureau Experian.
The company said some 45% of would-be home buyers (those planning to buy in the next year) are holding off until they improve their credit scores.
This is a good thing because it means they’ll be able to qualify for a greater array of mortgage programs, instead of say just FHA financing, and potentially obtain a lower mortgage rate (and lower monthly payment) in the process.
Still, 34% of those surveyed fret that their credit scores may hurt their ability to purchase a home. And one in five are holding off entirely for at least the next 5-10 years because of a low credit score.
But instead of worrying and accepting defeat, why not take action to improve things so you can shop for a home with confidence?
54% of Future Buyers Are Working on Their Credit Now
The survey found that more than half of future buyers were actively working on improving their credit before making an offer by paying off existing debt, keeping balances low, and making on-time payments.
This is wise given the difference in mortgage rates for an average credit score versus an excellent credit score.
Generally, you want to shoot for a FICO score north of 760 (though 740 might also do) to ensure you obtain the best pricing on both your mortgage rate and PMI, if necessary.
Sure, you can still get approved for a mortgage with an average or even poor credit score, but you’ll just wind up paying a lot more interest over the years. And poor credit history is still the number one reason why individuals are denied a mortgage.
How to Take Action Today
If you’re unsure of how to turn things around, it’s actually pretty easy if you have the means. Assuming you’ve made timely payments on all your credit accounts but your score still isn’t where it should be, consider paying down those outstanding debts.
Last month, I revealed that that my own credit score tanked after the holidays because I made a ton of purchases on my credit cards, this despite paying all the balances to zero well before the due date.
The problem is that credit scores are simply a snapshot in time of your situation, and if you make a bunch of charges you could look worse off than you really are.
So the easiest way to keep your credit scores elevated is to avoid as many purchases as possible before looking for a home, while also paying down any existing balances. This will certainly boost your scores. Additionally, this budgeting can help you set aside more money for the down payment, closing costs, and reserve requirements associated with a mortgage.
Another biggie is to avoid opening any new credit accounts before you begin your home search. This is easy, just don’t do it. Those new credit accounts can drag your credit scores down and will likely increase your debt and take a bite out of your assets. Once your mortgage closes, you can go buy new furniture and whatever else you want.
If you’ve got some late payments on your credit history, your scores will definitely be depressed. One way to resolve this is by disputing the delinquencies with the credit bureaus directly, via their own websites. You don’t have to mail in letters anymore, so this process is a lot easier.
It’s possible to get negative items removed simply if the creditor(s) doesn’t respond to your dispute (even if you were still technically at fault). Once removed, your credit scores can skyrocket.
The takeaway is that a low credit score shouldn’t be the sole reason why you’re not buying a home. And it’s a very fixable problem.
However, it does take time for positive actions to reflect in your credit scores, so it’s never too early to start working on it. The moves you make today can save you thousands upon thousands in the way of a lower mortgage rate.
In some cases, you might even be able to buy more house because less outstanding credit card debt means your DTI ratio will allow for a larger mortgage payment. Your offer will also be more competitive.
After you’ve gone through the effort of finding that perfect place, one of the worst things to learn is that you’ve been outbid by another buyer or real estate investor. Losing your dream house is discouraging, and it can be difficult to pick up the pieces to try and find another home to fall in love with.
In order to make sure this doesn’t happen to you, here are four ways to win in the competitive home buying market along the Wasatch Front.
1. Get real-time data
The Wasatch Front market is competitive. In fact, according to recent media reports, the market is on fire meaning there are many more buyers than homes for sale. The most recent data shows that Wasatch Front homes were selling much faster than in the previous years at an average of 48 days on the market in 2015, versus 62 days on the market during the same period in 2014. In 2016, preliminary data shows homes are selling even faster. In this hot market, you need real-time data to stay ahead of your competitors. Information about market conditions, standard practices, and average listing and sale prices can help you be ready to put together the right offer. This information is available to any homebuyer through real estate websites and apps such as Zillow and Trulia.
When you do your homework, you will understand the various dynamics in your specific target neighborhood and you’ll be ready to make a quick and well-informed offer once your dream home hits the market.
2. Be ready with your team
There’s a lot of complexity in the process of buying a home, and it takes a whole team of experts to help you land your new home. First-time homebuyers need to be aware of the process and make sure their team consists of an attorney, lender, home inspector, homeowner’s insurance provider and title/escrow company. Buyers who are able to act quickly to complete paperwork and other important steps have a better chance of getting a home under contract and then successfully closing the deal.
Whether this is your first home or not, it’s smart to be pre-approved by a lender before you begin the search for a home. This will help you know exactly how much you can afford and will guide you in putting together a competitive offer that works with your budget. Many lenders make it easy to get prequalified on their websites. When you do make an offer, sending your prequalification letter with the offer will show the sellers you are a serious and qualified buyer.
When you have all the necessary pieces in place, you’re ready to make your move. If you see a home you love, you should take a tour in person and then make an offer as quickly as possible.
3. Browse owner listings
Many homeowners are now listing their homes themselves without the help of a real estate agent. New services like Homie, which allow homeowners to sell without traditional real estate agents, are emerging to help sellers save substantially on selling costs.
As a buyer, you want to find the best deal on the best home. To make sure you don’t overlook any available inventory, it’s a good idea to browse “for sale by owner” listings on sites like KSL Homes and Homie, as well as Zillow and the traditional MLS. The most important thing is finding the home that is the perfect fit for your family, so the more places you look, the better your odds of discovering a hidden gem.
Just because a seller is moving doesn’t mean they’ve stopped caring about the property. In fact, it’s often the opposite — most sellers want to see their homes end up in good hands. Believe it or not, homes don’t always go to the highest bidder or even to the buyers that can close the fastest. Sometimes sellers really value non-monetary factors when deciding which offer to select.
When you work directly with the seller, you can prove to them that you have their best interests in mind. It is a great idea to share your story with the seller, or write a cover letter to your offer describing your love for their home. Sometimes it’s the personal connection, rather than the financial considerations, that seal the deal.
4. Negotiate realistically
You want to get into a home as quickly as possible, but you still need to be realistic in your negotiations. Don’t chase your “dream house” without considering the costs. If you find a home you like but it is out of your price range, or requires lots of repairs and upgrades you can’t afford to take on, don’t get too invested. A better one will come along soon.
When you put your offer together, keep in mind that home ownership has added costs compared to renting such as maintenance costs, taxes and insurances fees. These need to be included in your budget from the get-go. Don’t overextend yourself in the heat of the chase and end up with a mortgage payment and other home ownership costs that will stretch your budget too thin.
In addition, don’t make lots of lowball offers just hoping to score a great deal. This tactic rarely works, especially in a hot market, and can sometimes keep you from getting a home that you really like. If you have done your homework, you should know the price range for homes in your target neighborhood. Make an offer that reflects the home’s value and features, but still fits within that price range.
Another way to make your offer stand out and give you an advantage in negotiations is to use an attorney instead of a real estate agent to help you write and submit your offer. Real estate agents get paid three percent of the purchase price when they help you buy a home, so if you don’t have an agent, the seller won’t have to pay that three percent. That means you are much more likely to have your offer accepted while still saving money compared to other buyers that are using agents.
Today, there are even services like Homie that connect you with a real estate attorney to help you prepare an offer and then provide you with software to guide you through the rest of the home buying process and connect you with a team of preferred service providers — all for free!
Negotiating can be the toughest part of buying your new home, but the benefits are well worth the effort it takes to do it right.
Winning a home on the Wasatch Front
Utah’s Wasatch Front is an amazing place to live with a high quality of life, so there’s no question that it’s a great place to buy a home. Because of this, however, the Wasatch Front real estate market is hot, and in a competitive climate, you have to be extra prepared so that you don’t let the home of your dreams slip away.
Make sure you’re in the best position to submit and negotiate your offer by doing your homework, assembling the right team, using an attorney and looking at all available listings on your own. If you do these things, you’ll be ready to make your move the minute you walk in the door and know the house you’re touring feels like home.
The numbers this week are unfortunate: inventory should be growing like it does at this time every year. But, the weekly inventory data can occasionally have big moves up or down that can deviate from the longer seasonal trend so I need to see a few more weeks of inventory declining before I make too much out of one week.
However, one thing is for sure, housing is not going to crash due to large-scale panic-selling — a scare tactic of late 2021 that didn’t work then or now. New listing data was trending at all-time lows in 2021 abd 2022 and now it’s creating a new all-time low trend in 2023.
Weekly inventory change (April 28-May 5): Inventory fell from 422,270 to 419,725
Same week last year (April 29-May 6): Inventory rose from 287,821 to 300,481
The bottom for 2022 was 240,194
The peak for 2023 so far is 472,680
For context, active listings for this week in 2015 were 1,081,085
Weekly housing inventory
According to Altos Research, new listing data declined weekly and is still trending at all-time lows in 2023. This data line can have some wild swings up and down, but for the most part, we do see the traditional seasonal increase in new listings data. We are roughly two months away from the seasonal decline in new listings.
Since the second half of 2022, after the big spike in mortgage rates, this data line hasn’t gotten much traction. Last year at this time, we saw some growth year over year, but this year it’s been different.
New listing weekly data over the past three years:
2023: 58,432
2022: 76,691
2021: 73,291
New listing data from previous years to give you some historical perspective.
2017 99,880
2016 88,105
2015 94,101
As you can see in the chart below, new listing data is very seasonal; we don’t have much time to get some more growth here.
The NAR data going back decades shows how difficult it has been to get back to anything normal on the active listing side since 2020. In 2007, when sales were down big, total active listings peaked at over 4million. We had high inventory levels while the unemployment rate was still excellent in 2007.
This proves that the mass supply growth we saw from 2005-2007 was due to credit stress, not because the economy was in a recession; the U.S. didn’t go into recession until 2008. Even though the labor market is currently showing signs of getting softer, there is no job-loss recession yet.
The total NAR inventory is still 980,000. As you can see in the chart below, there is a big difference between the current housing market and those looking for a repeat of 2008.
NAR total active listing data going back to 1982
People often ask me why there is such a difference between the NAR data versus the Altos Research inventory data. This link explains the difference and is worth a read.
While this was a disappointing week on the inventory growth side, I hope this is just a one-week blip. We can see what a difference a year makes in inventory data. For example, last year, from April 22-29, weekly active listings grew by 16,311. So far this year, after the seasonal bottom in inventory happened the week of April 14, the total growth in active listings since that week has been only 14,257.
Traditionally, we would see active listings starting to grow at the end of January. However, that growth has taken longer in 2023 than any other year in U.S. history and so far the active listing growth from April to May has been mild.
The 10-year yield and mortgage rates
Last week we had multiple land mines for the 10-year yield and mortgage rates to rise or fall with the Fed meeting and four labor market reports. Although the Fed raised the Federal funds rate, the bond market is sensing a slower labor market and mortgage rates fell.
Tracking the 10-year yield and mortgage rates are essential for housing inventory because when rates fall, buyer demand gets better, allowing more homes to be bought and getting a lid on inventory growth, which we have seen since 2012. The only two years we have seen the active inventory grow were 2014 and 2022 when softness in demand allowed inventory to grow.
The big difference between 2022 and 2014, as you can see in the chart below, is that the bottom in 2022 was an all-time record low; we can see year-over-year growth in total active listings. However, the increase in inventory this year from last still puts active listings near all-time lows.
NAR Total Active Listings
We have seen from 2022 that the monthly supply of NAR data has grown more visually in the data lines; this means homes are taking longer to sell than before. I wrote about this last week and talked about it in the HousingWire Daily podcast.
NAR Monthly Supply Data
Mortgage rates started last week at 6.73% and fell as the labor data and banking stress drove money to the bond market. We briefly broke under my key Gandalf line in the sand (between 3.37%-3.42%) intraday, only to close right at the line and rise by the end of the week. This line has been truly epic.
Mortgage rates fell to a low of 6.43% then ended the week at 6.5%. The spreads between the 10-year yield and 30-year mortgage rates have been terrible for a long time and have gotten worse during the banking stress. While credit is stlll flowing for conventional loans, mortgage pricing has been bad. Mortgage rates in a regular market should be 5.25% today but are at 6.5%. Can you imagine the housing market at 5.25% today when we found stabilization with rates ranging between 5.99%-7.10% this year?
In my 2023 forecast, I said that if the economy stays firm, the 10-year yield range should be between 3.21% and 4.25%, equating to 5.75% to 7.25% mortgage rates.If the economy gets weaker and we see a noticeable rise in jobless claims, the 10-year yield should go as low as 2.73%, translating to 5.25% mortgage rates.
Of course, the banking crisis has added a new variable to economics this year. However, even with that, the labor market, while getting softer, hasn’t broken yet. We have been in the forecasted range all year, even with all the drama from the banking crisis, which isn’t good news for the economy.
My line in the sand for the Fed pivot has always been 323,000 jobless claims on the four-week moving average. This has been my big economic data line for the cycle since I raised my sixth and final recession red flag on Aug. 5, 2022. While the labor market is getting less tight, it’s not broken yet.
From the Department of Labor: Initial claims for unemployment insurance benefits increased by 13,000 in the week ended April 29, to 242,000. The four-week moving average also rose by 3,500 to 239,250.
Purchase application data
Purchase application data has been the main stabilizing data line for the housing since Nov. 9, 2022, with 16 positive prints versus seven negative prints, after making some holiday adjustments. For 2023, we have had nine positive prints versus seven negative prints.
The MBA purchase application data line has been very rate-sensitive: when the 10-year yield and mortgage rates rise, it typically produces a negative weekly print, and when they both fall, we get a positive print. This past week we saw a 2% week-to-week decline in the data line.
The year-over-year decline in purchase application data was 32%; as I have noted, we are working from the mother of the all-time lowest bars in 2023. As we can see in the chart above, just having 16 positive prints since Nov. 9 has stabilized the data — it’s been hard to break lower than the levels we saw back in 1996.
The year-over-year comps will get noticeably easier as the year progresses, especially in the second half. This data line looks out 30-90 days for sales, and we are almost done with the seasonality. I always weigh this report from the second week of January to the first week of May. Next week for the tracker, I will report on how 2023 demand looks based on this index.
Traditionally, purchase application volumes always fall after May. Now, post-COVID-19, this index has had some abnormal late-in-year growth data. So, after May, I will address this issue with seasonality and whether we will see some growth later in the year, as we have seen in previous years.
The week ahead: It’s Inflation week!
All eyes are on the CPI report this week, coming on Wednesday, and we have the PPI inflation report on Thursday. The entire market knows the headline inflation growth rate peaked last year, so watch out for the core inflation data, excluding shelter inflation. Of course, core CPI is primarily driven by shelter inflation, and we all know by now that it will cool off, especially as the year progresses. However, the Fed and the markets focus on service inflation, excluding shelter.
I am keeping an eye on the car inflation data as that might be stubborn this week, keeping core inflation higher than it should be.
The bond market never bought into the 1970s inflation premise, so the 10-year yield is closer to 3% than 5%. Since the entire marketplace is keeping an eye out on credit getting tighter, I will be watching the Senior Loan Officer Opinion Survey on Bank Lending Practices on Monday. This will provide more clues into how fast credit is getting tighter in the U.S. economy, which is key at this expansion stage.
So, we will have some economic data to see if the 10-year yield can break lower and send mortgage rates lower as well. So far, the Gandalf line in the sand has held up against some brutal attacks this year, but we shall see if we can break under that line of 3.37% and head lower in yields. Why is that important? Because the 10-year yield and mortgage rates have always danced together, and if the 10-year yield heads lower, mortgage rates will follow it.
You’re great, smart, and people just love you. A little praise has already taken you far in life, and now it’s time to apply it in pricing your home for sale.
What’s wrong with a little self-confidence when attracting a buyer, anyway? Nothing. But watch out.
Here are six things that overconfident home sellers do when pricing their home, and some helpful tips on how to avoid them.
#1: Trust themselves more than they trust the market
If you’ve been on social media sites ever in the past ten years, you might have seen messages to the effect of: “Your worth depends on how much you value yourself,” and “Speak about yourself the way you would about a prized possession.” This advice certainly has merit, but sadly, little value in the pricing of your home.
Houses have value only in the amount that a buyer is willing to pay for them. You can tell yourself your home is worth a million dollars, but statements of self-affirmation will do little to attract a buyer.
#2: They ignore the endowment effect
Studies show that when a person owns something, they mentally set its value at a price much higher than what they personally would be willing to pay for it. This is called the Endowment Effect. Say you have your eye on a carbon frame road bike which sells for $2000, but wait to purchase until you see a sale price of $1800. A year later, you want to sell this bike, which is worth—to you—$2000. But is it worth that? Of course not.
1) You weren’t willing to pay $2000 for it.
2) You got to own it new (or newer) than it is currently.
3) The experience you give the buyer—a garage sales-location versus a brick-and-mortar store—matter.
Homes are similar. Homeowners often value their own home at a price that is substantially higher than what they themselves—let alone the market—would be willing to pay for it. The reasons are the same as the three mentioned above. 1) Sellers want to feel like they are getting a good deal. (But so do buyers.) 2) Every home is older when it goes on sale than it was when it was purchased. 3) The experience of the sale matters, and current homeowners are not necessarily more talented than previous-owners at showing off the home.
#3: Misunderstand that Homes Don’t Go Up in Value, Property Does
Homes are like bikes. The older they are, the more wear-and tear they have. In fact, should you happen to own a rental home, you know that you can write-off the depreciation of the rental annually. This is because, as years goes by, the units which you rent out will eventually need to be remodeled extensively, just to keep them at the same value to renters. It’s even possible for a building to lose so much value that it is a complete loss, like a car that is worth less than the money needed to repair it. A building like this is generally torn down and replaced.
Property, on the other hand, tends to go up in value at a rate that reflects inflation, with the big wild-card being location. If the location in which you purchased becomes more desirable, you will gain equity. If the location becomes less desirable, you will lose equity.
#4: Price Your Home Based on What’s For Sale
Okay, so you’re ready to set your home value based on the market. Good for you. You look at homes on sale similar to yours and set your price to match.
Here’s the problem: The houses staying on the market longest—many of which you noticed specifically because of the lengthy time you’ve had to process that they were on sale—are overpriced.
House, like other retail items, do not always sell at asking price, as you may have noticed when you waited for a sale on the bike. You need to see what homes are selling for, not what over-confident homeowners are asking for. Appropriately-priced home sell quickly in a seller’s market like the one Utah is experiencing, often going under contract in days.
Getting data on purchase prices is trickier glancing at home sale prices, but certainly not impossible. Start with a desktop appraisal, like the one Homie provides free to all its clients. Once you’ve got purchase price info from comparable homes, check out our step-by-step details on setting your price.
#5: They over emphasize the value of their net on the home.
Imagine you fall in love with a house you can only purchase if the home you currently own sells for not a penny under $300,000. So you set that price as your asking price and won’t budge.
Whoa, not so fast. Consider the opposite scenario. A lovely couple wants to buy your property but can only afford to pay $270,000 it, not a penny over. Will you sell it at that? Not if a second family offers $290,000. Just as more than one buyer exists, more than one house is for sale. Buyers will bite on your house if it’s a reasonable deal compared to others. They will not pay an extra $10,000 to do you a favor.
#6: Expect 100% Return on Upgrades
Just as road bikes lose value the instant they’re used, so do flagstone patios, granite countertops and spring maple laminate floors. Even if your upgrades are perfectly marketable, they still depreciate in value over time. In valuing your home, you shouldn’t expect to retrieve more than 80% of your investment.
Bottom line
Setting your price is giving your best guess at what the market will pay, with helpful tools like Homie’s desktop appraisal to guide your thinking. If you set low, you are likely to get multiple offers that may drive up the price of your home as it goes to auction. If you set high, your home will languish on the market without offers until you adjust the price. React to the market and you have a high chance of selling your home in a reasonable amount of time.
If you really want to make more money on the sale of your home, visit Homie to check out our services and technology, which replace real estate agents and don’t come with commissions. Happy home-selling!
One popular way people pay off debt is to use the equity in their homes. Home equity loans and home equity lines of credit (HELOCs) let borrowers use their homes as collateral in exchange for financing. Just be sure to factor in the risks if you’re considering this option. The lender can seize your home if you can’t make the payments.
Who this is best for: Borrowers who have built up equity in their homes.
Who this is not good for: Those unsure of their ability to maintain the monthly payments.
Home equity loan versus debt consolidation loan: Home equity loans and HELOCs may offer lower rates than debt consolidation loans, though they come with more risks, since your home is used as collateral.
Debt relief services
Debt relief services, including debt settlement companies, offer another way to deal with your debt if you can’t qualify for a consolidation loan. These companies reach out to creditors and debt collectors on your behalf and try to settle the debt for a lesser amount.
If you decide to pursue debt relief services (perhaps as an alternative to bankruptcy), be aware that the fees these companies charge can be steep. Take your time to fully research fees, reviews and other details before applying. It’s also wise to compare multiple debt relief companies before you commit.
Who this is best for: Borrowers who are experiencing financial hardship and cannot pay their debt.
Who this is not good for: Those with a thin credit history or less-than-stellar credit score.
Debt relief services versus debt consolidation loan: Unlike debt consolidation loans, debt relief services aim to eliminate some of your debt without you having to pay it. With that said, pursuing debt relief is a risky move, and it can damage your credit score.
Credit counseling
Another option that can help you get debt under control is credit counseling. Credit counseling companies are often (though not always) nonprofit organizations. In addition to debt counseling, these companies may offer a service known as a debt management plan, or DMP.
With a DMP, you make a single payment to a credit counseling company, which then divides that payment among your creditors. The company negotiates lower interest rates and fees on your behalf to lower your monthly debt obligation and help you pay the debts off faster.
DMPs are rarely free, though, even if they’re done by a nonprofit credit counseling service. You may have to pay a setup fee of $30 to $50, plus a monthly fee (often $20 to $75) to the credit counseling company for managing your DMP over a three- to five-year term.
Who this is best for: Borrowers who need help structuring their debt payments.
Who this is not good for: Those with little wiggle room in the budget.
Credit counseling versus debt consolidation loan:With a debt consolidation loan, you’re in control of your payoff plan, and you can often apply with few fees. With credit counseling, a third party manages your payments while charging setup fees.
Balance transfer credit card
With a balance transfer card, you shift your credit card debt to a new credit card with a 0 percent introductory rate. The goal with a balance transfer card is to pay off the balance before the introductory rate expires so that you save money on interest. When you calculate potential savings, make sure you factor in balance transfer fees.
Keep in mind that paying off existing credit card debt with a balance transfer to another credit card isn’t likely to lower your credit utilization ratio like a debt consolidation loan would.
A debt consolidation loan is also going to offer higher borrowing limits, enabling you to pay off more debt, as well as fixed monthly payments, which make it easier to budget and stay disciplined with paying off debt.
Who this is best for: Borrowers who can pay off existing debt quickly.
Who this is not good for: People with a young credit history or a less-than-average score.
Balance transfer credit card versus debt consolidation loan: Balance transfer cards are often the best choice for borrowers who have the means to pay off their debt within 18 months, which is a standard 0 percent APR period. If you need longer to pay off your debt, or if you have a lot of debt, a debt consolidation loan is a better choice.