Trying to “Time the Market”?

You might ask yourself – when is it appropriate to try and “time the market?” The short answer is never. One problem with attempting to time your purchase just right in tandem with economic patterns is that no one can really predict with any degree of accuracy – the future.

Many reports get published, predictions are made and some of them can be very close to spot on but the reality is that no one can tell for certain what will happen or when. Another challenge is that interest rates are most often higher during a recession (or depressed) market and household incomes might not be keeping up with the market. For that reason, fewer people can qualify for a home purchase during down times, than in prosperous times.

When it comes to timing the market, another big factor is affordability. That does seem to overstate the obvious but companies are typically not awarding employees with significant raises and cutting more than they are hiring. There are also heated battles being fought over minimum wage requirements all across the nation.

Did you realize that it’s been 5 years since the last time the federal minimum wage was raised? On October 10, 2015 the Labor Department is participating in a National Day of Action joining workers, government officials and business owners to show their support for increasing the minimum wage. They will be using the hashtag #RaiseTheWage to highlight why it’s time to increase the minimum wage in this country from $7.25 to $10.10 an hour for all hardworking Americans.

Since 2014, 13 states — including California, Connecticut, Delaware, Hawaii, Massachusetts, Maryland, Michigan, Minnesota, New Jersey, New York, Rhode Island, Vermont, West Virginia — as well as Washington, D.C., have already taken action to raise their minimum wage.

As of Jan. 1, 2015, those states plus Alaska, Arizona, Colorado, Florida, Illinois, Maine, Missouri, Montana, New Mexico, Nevada, Ohio, Oregon and Washington will have a minimum wage above $7.25. There are of course, 2 sides to the argument stemming from business owners claiming if the wage is lifted to $10.10 per hour they will have to cut staff because it will be more difficult to make payroll each week. On the other side, stands the employee and states that with all of the costs of living continuing to rise, how are they expected to raise their families with a paycheck that never comes close to matching the rate of inflation? It’s a good debate and it will be very interesting to see how things play out in October. What side will you be on?

Whatever change does take place, we can bet it’s going to impact consumer spending for certain across the board.

For most people, changing employers will not impact the ability to qualify for a mortgage loan, especially if you are going to be earning more money. For some homebuyers, however, the effects of changing jobs can spell disaster when it comes to your loan application. Make sure you discuss in great detail with your lender and know ahead of time what implications any change in your employment that might occur during your home buying experience and what its impact could be. Always be armed with the best knowledge and you will stay on the right track.

A word about traditional, salaried employees:

If you are a salaried employee who doesn’t earn additional income from commissions, bonuses, or from working any over-time hours, switching employers should not create a problem. Just make certain to remain in the same line of work. Hopefully, you will be earning a higher salary, which will help you better qualify for your mortgage anyhow!

A word about standard, hourly employees:

If your income is based on hourly wages and you work a straight 40 hour shift each week, without over-time, changing jobs (for the same wage or higher) should not present any trouble for you. Length of employment does come into play for some lenders. They love to see stability and not job hopping. Stay tight with your lender and disclose everything to them, let them help guide you in the right direction and hide nothing from them. It will only cause you problems down the road if you do.

A word about non-traditional, commissioned employees:

This scenario is when an individual has a substantial portion of their income stemming from commission paychecks. Lenders typically average your commissions over the last two years, and you should never play around with how lenders calculate your income. Changing employers while trying to keep a loan application together is not a good idea. It will create uncertainty about your future earnings from commissions. (There would be no track record from which to procure an average income.) Even if you are selling the same type of product, with essentially the same commission structure, the underwriter will not be certain that your past earnings will accurately predict future earnings. Changing jobs would greatly impact your ability to secure a home in a negative way.

A note about bonuses – will they help or hurt?

If a substantial portion of your income at your new employer will be generating from bonuses, you may want to discuss this in great detail with your lender before moving ahead. Mortgage lenders will rarely consider future bonuses as income unless you have been on the same job for a minimum of two years and have a good track record of receiving those bonuses. They, the lender, will average your bonuses over the last two years in an effort to realistically calculate your earned income.

Changing employers means that you do not have the required two-year track record necessary to count bonuses as income. Ouch.

A word about part-time employees:

If you earn an hourly income but rarely work a 40 hour work week, you should not change jobs. There would be no way to tell how many hours you will work each week on the new job. Therefore, there’s no real way to determine your income. If you stay at your current job, the lender can simply average your earnings and come up with a figure. If you have a choice in the matter, stay where you are during the home buying process and after you are closed and moved in, redirect your efforts into finding a new and better job that you love.

Be careful to make sure you align the rate of pay with what you previously had so you don’t fall behind on any payments or get yourself into a situation where you’re paying penalties and sliding backwards or falling behind. It sounds very obvious to say that but you’d be surprised at how many people still overlook this fact.

Earning over-time income can help:

Since all employers award over-time hours differently, your overtime income can be determined, but be very careful about switching employers. If you remain at your current job, most likely, if there is a good track record established, your lender will give you credit for the over-time income. They determine your over-time earnings over the last two years, and then calculate a monthly average. That’s great news! Keep working hard!

A word about self-employment:

If you are considering trading in your steady job for one of self-employment before buying a new home, don’t do it. Make your purchase first.

Lenders like to see a two-year track record of self-employment income when approving a loan. In addition, self-employed individuals tend to include many expenses on their Schedule C of their tax returns. This is especially true in the early years of the self-employment. While this minimizes your tax obligation to the IRS, it also minimizes your income potential to qualify for a home loan.

If your income is very high, well above average, and the loan amount you are seeking is considerably “low” your lender will consider this fact as well. It would be a similar situation to buying a home for cash, but not quite.

It’s very important to note that if you are considering changing your business from a sole proprietorship to a partnership or corporation, you should also delay the process regarding your purchase for the same reasons as stated above.

When transitioning from being a W-2 employee over to a 1099 employee, it’s considered that same ‘ol situation when considering commission and bonuses. Meaning, that the lenders need to have a two year history to average a 1099 income. They can use one year instead of two, but you have to still prove that you’ve been self-employed for at least two years previous to the switch. The bottom line is that is you are going to be switching anything regarding how you generate income during a home loan process, get all the details up front from your lender to make sure you can still keep wind in your sails.

People who already have a home usually need the funds from the closing to secure their next purchase. If a “move-up” buyer wants to buy a home during a depressed market, that means they usually have one to sell themselves. Timing becomes very important and negotiations become more involved so neither party is forced into short-term housing or find themselves in rent-back situation because closing dates couldn’t match up. It’s important to work closely with your Realtor, your lender and be made aware with frequent updates from the other side of the table that things are headed in the right direction, and for a smooth closing. The ideal here is for all the stars to align, for everyone involved.

Interestingly, if a Seller wants to sell his home to take advantage of a “hot” market (when prices are fairly high) they generally are faced with the reality of securing that purchase within the same “hot” market, and can expect to pay a premium on the other side as well. In a very real way, things even out. Having said that, the way some areas are rebounding quicker than others it is possible for a Seller to sell for a higher price in an area that currently has much more demand than the area they are moving into next. This could be an inter-state move or it could even happen in the same county.

Obviously, economic patterns will change over time. They always have. Since The Great Depression of 1929, we have had quite a few periods of declining markets not only here in the USA, but globally as well. No matter the length of time between depressed markets and/or higher interest rates, you wouldn’t want to wait over a period of years to buy a home, would you? You would still potentially miss out on a substantial amount of equity and appreciation by waiting over long periods of time. Not to mention the losses you would have incurred in paying rent that you’ll never see again.

Among all of these economic shifts, according to the U.S. National Bureau of Economic Research (the official arbiter of U.S. recessions) the sub-prime mortgage crisis was a disaster. In terms of overall impact, it was concluded that it was the worst global recession since World War II. It began in December 2007 and ended in June 2009, and thus extended over 19 months. Of course this is common knowledge today and the country is still rebounding from the tremors felt along the way. According to Wikipedia, there are several “narratives” attempting to place the causes of the recession into context, with overlapping elements. Four such narratives include:

1. There was the equivalent of a bank run on the shadow banking system, which includes investment banks and other non-depository financial entities. This system had grown to rival the depository system in scale yet was not subject to the same regulatory safeguards. Its failure disrupted the flow of credit to consumers and corporations.
2. The U.S. economy was being driven by a housing bubble. When it burst, private residential investment (i.e., housing construction) fell by nearly 4% GDP and consumption enabled by bubble-generated housing wealth also slowed. This created a gap in annual demand (GDP) of nearly $1 trillion. The U.S. government was unwilling to make up for this private sector shortfall.
3. Record levels of household debt accumulated in the decades preceding the crisis resulted in a balance sheet recession (similar to debt deflation) once housing prices began falling in 2006. Consumers began paying down debt, which reduces their consumption, slowing down the economy for an extended period while debt levels are reduced.
4. U.S. government policies encouraged home ownership even for those who could not afford it, contributing to lax lending standards, unsustainable housing price increases, and indebtedness.

Fast forward to 2015, where there are many “boomerang” buyers that are starting to come back into the market now due to their time on the sidelines being almost up because of a short sale, or foreclosure they may have had to suffer though because of the circumstances stated above. Many homeowners are forced to rent because they wouldn’t be extended a line of credit – yet. Once they eagerly return to the game though, sources predict a large upswing in home sales and a subsequent decline in the rental market which for several years now has been white hot.

Today’s buyer would be very wise to form an alliance with their lender of choice, run a credit report, find out the reality of their situation and what programs they might qualify for with regards to homeownership and sweep up any mishaps from their past (if they have any) and put a plan of action into place and follow it diligently. For many people, this is easier said than done but if home ownership is still something you strive for – it is entirely possible to go out and get it done!

When talking with real estate agents, you’ll often find that when they speak to you about buying real estate, they refer to buyer’s purchasing a “home” and the sellers putting their “house” on the market. Why the play on words? The reason is psychological. Buying and selling real estate is one of the most involved and emotional situations a person can ever be in. Unless it’s simply for investment purposes, in which case many of these types never even see the homes they buy to fix and flip, it’s all number crunching for profit (if any) and no emotional ties are present.

In any regard, the Realtor tries to remove some of the emotional value and sentimental feelings about the sellers home when getting it ready to place on the market. It’s tough at times to think you’ve raised your family in that house and had so many celebrations, birthdays, holidays, and now maybe the kids may have moved on and have families of their own, and you’re experiencing what’s commonly known as the “empty nest syndrome.”

It’s natural to be emotionally connected to that home more than a buyer will be just walking in the door evaluating it for him or herself. Often times people place monetary value on things that are really only sentimental to themselves. This is where the unique task of separation begins. It’s a fine line for the Realtor to walk you though and can be a tricky situation.

If there is something adverse going on during the selling process, for example, a divorce, the game of keeping things on an even keel becomes even more challenging for everyone involved. Emotions run high, and most often people are hurt so they don’t respond as clearly or as level-headed as they might have under “normal” circumstances.

Whenever you are selling, and for whatever the reasons, you need to view your home as a marketable commodity. The goal is to remind yourself that you are making a change and entering into the next chapter of your life. It’s important to show off your home to the next family to make their memories there as desirable as possible. Stand out from the competition, to some degree, pay it forward. Your warm and loving home was built to provide a shelter and a safe environment for many families during its own life-span. It’s not uncommon to hear comments at the closing table from a seller (who is tearing up) explaining the happiness and good things it brought to their family over all those years that they will never forget, just before they pass the torch onto the new owners.

Homeowners who cling to tightly to the past, or have unrealistic views on how much their home is worth because they allow sentimental views to come into the value, are more susceptible to spending a longer time on the market.

With that in mind, the first step in getting your home ready to show to the public is to “de-personalize” it.

Here’s why it’s done:

The reason you want to take this step is because you want potential buyers to see themselves in the home as “their home” and not visiting for a short time in someone else’s. Typically, when buyer’s see a lot of family photos on the walls, trophies, and other very personal items, it creates a mental block for them and it becomes harder to see beyond that. They want to envision their own furniture in the living room, and see their own method of setting up the kitchen. Things might look and feel “busy” if you don’t de-clutter.

A good idea is to clear out many of those items and put them in a safe place so you can display them in your new home once you get there. This doesn’t mean you have to take every photo of your children down and live in a “cold museum” while your home is on the market. It’s about simplifying things. It’s inspiring to let the potential buyers know and feel for themselves that this home was, and still is a place to be cherished and welcoming to a new family and their friends! That she’s got a whole lot of life left in her!

This “de-personalizing” stage is often the hardest part for a family because it’s at this time they feel the transition they are about to embark upon becomes very real. All of a sudden, personal items that have been on the walls and in the house for as long as you’ve been there seem to carry a lot more weight than they seemed to have previously. Try not to let that get you down. After all, they’re all still coming with you!

In a big way, it’s a spring clean of sorts to lessen the time on the market and keep you moving forward as well. If it’s financially possible for you to rent a temperature controlled storage facility while things are being packed away for now, that’s really the best. You can find many uses for a storage facility as well during this transitional period. They sure come in handy!

But, try not to store everything in the garage, attic or the basement. It closes everything in and the buyers can’t see how much smart, usable space you really have in that garage, or maybe up in the attic. Let them see what you’ve got to offer! Use this time to “air things out” and spring clean everything. Clean up the closets, shine up those windows, wipe down doors, clean under the sinks, wash the cabinet doors – both sides, organize the pantries, overhaul the appliances, and deep clean the carpeting and other flooring. Leave nothing unattended to.

If you find that you have alot of clothes, maybe it’s a good time to have a rummage sale and help subsidize the cost of the storage unit. If you have found that you own an overabundance of clothes and household items in general that you don’t feel comfortable distributing to the neighbors, donate them to a local Goodwill and let a family that has not been as fortunate as you’ve been share in these items. It will make you feel a lot better during this cleaning process. Karma always comes back.

The main objective here of course is to take a step back and try to see your home through the eyes of a buyer looking to live there. Ask your agent for help. Let them show you photos of current trends or color pallets that are helping homes sell faster and maybe even at higher price points. Try not to get defensive. It’s only honest feedback and not demands that they’re offering up to you. Ask friends to come over and give their two cents if you’re more comfortable with that. Go visit some open houses in popular neighborhoods with low average days on market times and see what they have done. Take what you need and apply it to your situation and you’ll find the whole experience more enlightening, and a lot more fun!

A word about kitchen clutter:

The kitchen is a popular place to start getting things organized. First off, remove everything from the counters (yes, even the toaster) and wipe them down good. Find places where you can store the items that you’re still going to use like the coffee maker, and have them easily accessible to you. As stated before, if you find that you’ve collected so many different pots and pans, cookware, glassware, as example, take a true inventory and ask yourself what might be expendable to make room for more important items.

Clean and unencumbered counter space is something that today’s modern buyers are very fixated upon. They love the feeling of clean, organized spaces. Don’t leave a bad impression either. Cleaning under the sinks is a great idea not only cosmetically, but you might just discover a slight leak or some plumbing that could use a little help. Fix it now. Don’t wait for it to be brought to your attention because these buyers won’t tell you. They will just assume that maybe there are other areas of the home that leak too. This is no good.

If you have a junk drawer, organize or get rid of the actual “junk.” If you have large amounts of food stored up, plan some menu’s and use it up before it goes stale and as far as canned goods are concerned, use those often too! They are heavy, and you would ideally like to lessen the load during your up and coming move, right? While were on that topic, DVD’s, CD’s, and books when combined, weigh a ton! Get them over to your favorite Half Price Books location and trade them in for some money instead of moving them around. If there are some you just can’t part with, it’s no big deal but you’ll be surprised at what will appear to be excessive when you really take a hard look at it. Streaming movies these days with your Blu-ray or Smart TV is here to stay and not just a fad for the future. You can keep those old classic, must-have movies and music stored right there in your personal Cloud. You can watch them whenever you want, and on multiple devices for that matter, and yet you’ll never have to max out your shelf-space or dust them ever again. Perfect.

Make certain all of the dishes, and canned goods (among other foods) are organized neatly in the kitchen. This includes the refrigerator and freezer. Eliminate any foul odors (if there are any) and pop a fresh box of baking soda in to the ice box. Make sure it looks good too, with clean racks and drawers. Clean up the dishwasher as well. No foul stenches allowed! Buyers are notorious for peeking into dishwashers, and we have not yet figured out why. Until we do, please make sure your kitchen sparkles and looks beautiful! It will go a long way in the eyes of the modern buyer. They will naturally assume that if you keep the kitchen in this amazing condition, the rest of the home should be keep immaculate too, right?

It keeps them moving in the right direction which is to have them agree with you that your house is the best one out there and they want to submit their strongest offer possible. Having an immaculate home will be the place to set that thought process into motion for them, guaranteed.

A final word about closet clutter.

Closest are an amazing thing. They are masters of collecting clutter, though you don’t think of it as such. We’re talking about extra clothing, shoes, and other things you’ve held onto but rarely wear. Maybe you can’t be without them for sentimental reasons like a tuxedo or a wedding dress. No problem! Just safely store them with your other items that are now in your storage unit so they can be brought out later. All of these items, especially large items like blankets, make your closets look like well-fed eating machine. Try your best to let potential buyers see that you DO have a lot of closet space! Smart organization and placement are usually near the top of their list when searching out a new home to purchase, but closet space is a must have. It’s on the top of all their wants lists every single time. Buyer’s endorphins really kick in when they realize that their potential new home has an abundance of clean, accommodating closet space!

A quick note about furniture clutter – it’s a real thing.

In so many cases, people have an abundance of furniture in a certain room maximizing its potential. Perhaps not for your own personal family or lifestyle, but if there is too much, it will rob the room of its space and create an illusion to the buyer that there isn’t any real space for them to work with. Granted, it might be a small room or a den but even those spaces can be staged correctly, and featured as real useable space that seemingly offers a lot more than what you originally had given it credit for.

Another way to go about this is to tour a few builders’ model homes to get sense of placement for what todays modern buyers are looking for. Heck, they’ve spent a lot of money researching trends to help sell their line of homes, so why not take advantage? It will definitely give you a sense of what to keep in your home, and what might have to go to the storage facility, or for that matter, up for sale on Craigslist. Again, donations are always good too. It helps warm your heart, giving to others in need. They call it human nature.

Also, you can Google things like “furniture placement for my living room or den.” Try typing in “home staging tips from the masters.” There are plenty of shows on HGTV (as well as their website) that talk specifically about staging. Searching YouTube is another incredible resource! In fact, there is so much information available on this subject, that you’ll never be able to get through it all. Take what you like and be done with it.

A word about storage area clutter:

If you live in the Midwest or other areas of the country where basements are commonplace, you most often will encounter clutter. It almost seems to accumulate items and duplicate its contents all by itself!

The best possible scenario for a buyer is to see a basement with storage shelves built right into the concrete walls where items are stored neatly and in an organized fashion. The floors are swept clean and there is no trace of mildew or other odors.

Also, they don’t like to see water of any kind. Before you list your home with a Realtor, take some time to clean out that basement and find out if any trouble is lucking down there that could bring to light a costly repair. If there is one that needs to be addressed, and you have the means to do it, call in a foundation expert, diagnose the issue and get it fixed right immediately.

As the Earth moves and changes, pressure builds up over time against foundation walls. Sentiment can harden (or soften) over long spans of time, and cause walls to crack, or need some reinforcement here and there. It happens all the time, and it’s almost unstoppable in some areas of the country. When these repairs are completed, they often come with transferable warranties. That becomes another perfect selling point to add to the homes description.

This process will demonstrate that you not only cared for this home, you maintained it from every angle. It will bring a smile to a buyers face faster than a walnut can roll off a hen house roof! If any defects are discovered in the home inspection phase, buyers will typically ask you to fix any structural defects that might get discovered. Also, it’s common that they can have a chance to back out of the contract if any are discovered and then, to add insult to injury, due to disclosure laws, you have to alert everyone else that might be a potential buyer for your home, know ahead of time, that you have knowledge of a foundation problem. That will slow the entire process down for you in a big hurry. You don’t need that.

So, do yourself a favor and try to uncover any potential adverse facts and set them straight, before you get in the ring! You’ll feel like a champ knowing that when the bell rings, you’re ready for a one – two, knock-out!

There are times when the economy is booming and everyone feels confident about their prospects for the future. As a result, people often times spend more money. People tend to go out to dinner more often, tip heavier, invest in wardrobe updates, maybe buy a new car and… more often than not, buy a new home. If the interest rates are friendly, this is especially true.

Then, for many reasons, there are periods of time when companies lay off employees and consumers become much more frugal about when and when they spend their money. They begin saving more money than spending it. When this happens, the economy further deflates. If it slows down enough, we’ll have a bona fide recession on our hands. During times of these depressed markets, many families shy away from more expensive items including buying new homes.

Still, some home owners find themselves in a situation where they must sell despite the current economic times.

Families continue to grow beyond the capacity of their homes, employees get relocated, and some may even find themselves unavailable to make their mortgage payment – perhaps because of a lay-off in the family or, they may be experiencing negative equity. In other words, they owe more than their home is worth and selling becomes very difficult without coming to the closing table with enough cash to satisfy the loan. Consult with your lender and a professional Realtor to talk about options and discover what the financial situation really is that’s actually in front of you. This is paramount.

(Even as the market continues to rebound in 2015, saving your home or finding a way to sell it without suffering can often be worked out.)