Archives for February 2017

Are Boomers Responsible for the Housing Inventory Shortage?

The answer is to a degree, but not entirely.  

To clarify my explanations below, when I refer to seniors I am talking about the generation that are mid-70s and older.  Baby Boomers are those in the 52-71 age range.

  1. New England is a bit unique in that people here, particularly the older generation, tend to stay put for many, many years. I specialize in selling homes of seniors and selling estate homes.  It is extremely rare to find an older home owner who willingly leaves their home.  If they move it is because their children have decided it is too dangerous for them to stay in the house alone.  You don’t know how many times I have heard some variation of “they are taking me out of here feet first, my children will be selling the house after I die.”
  2. In the big picture, they don’t think it makes sense for them to sell. One issue is that the value of homes in the greater Boston area has risen so much that if someone who has been in their house for 30,40,50 years sells, they would far surpass the $250K profit limit ($500K for a couple) at which point they would have to pay capital gains taxes. If they keep the house until they pass and leave it to their children, then the basis value of the home resets to whatever the market value is when they died. 
  3. Another issue is that there are very few choices for downsizing. If they are not leaving the state for a warmer climate, most seniors want to stay in the same town to be near their friends, neighbors, doctors, etc. Most of the towns outside of Boston don’t have enough inventory of affordable housing for seniors.  Boomers can’t go far because they are still working and need to be near their jobs.  All of this is compounded by the fact that demand is pushing up the price of houses on the lower end of the market, but not pushing up the price of the seniors’ larger houses commensurately.  I’ll use Newton as an example.  In Newton, a 2000sf 3-bed, 2-bath house in good condition might sell for anywhere in the $900K-$1.3m price range.   The home of a senior that might be in the 3,000-6,000sf range might sell for $1.5m-$1.6m.  Why is that?  Because if a younger person is going to buy a house of that size, they want a new one.  They realize the older homes cost more to maintain, heat, etc.  So particularly, Boomers who are working an can afford their homes, figure they may as well stay put.
  4. Boomers are uniquely nostalgic and resistant to change of their towns. Perhaps because our childhoods were at a time of prosperity for most American families and a time of suburban living with a lot of other children to play with.  The greatest resistance to change appears to come from this generation.  If builders knock down old run-down homes to build the new, big homes  we complain that the city is becoming gentrified.  Or we complain that these houses are not in keeping with the old Ranches, Capes and Split-Entries that proliferated after WWII.  If the city tries to build a higher concentration of affordable rentals, we complain it will bring crime to the city or bring people who are taking resources without contributing.  It doesn’t take a genius to figure out that if no new inventory is being added and seniors and Boomers aren’t leaving, there will be a inventory shortage.  Think of it like a revolving door and we are the ones with our foot in the door, blocking everyone behind us from moving forward.

While Boomers might be contributing, we are not entirely responsible for the shortage.  Boston is an area fortunate to be flux with high-paying jobs, but with no land left for housing developments. And we are certainly not responsible for the massive influx of foreign nationals buying homes here – with cash in their pocket and the ability to outbid most other home buyers, pushing prices up.  These people are coming here because of the great schools, the strong job market, and the stable housing market.  Several things could happen to change this in the future, but that is discussion for a future post. In the end, it still comes back to the fact that there s no room here to build more inventory unless we build up or in a higher concentration.    

It will be interesting to see what changes the future will bring – perhaps builders will find a way to build large, over 55 communities in or close to the city.  Or they will build houses that will appeal to Boomers who want a big entertaining area, but don’t need or want to pay for 5 bedrooms and 5 bathrooms.   Right now though, there is no profit for builders in creating smaller homes.

One change we all need to watch out for is inflation and rising interest rates.  If Trump succeeds in taxing everything coming into the country and bringing jobs here at a higher pay scale, inflation will follow.  Which is then followed by rising interest rates.  That could have a slowing affect on home purchases, particularly at the entry level.

I’ll expand more on these last few points in future posts as economic events unfold.

Michelle J. Lane

MICHELLE J. LANE, Realtor
Century 21 Commonwealth
CELL: 617 584-3904

Financial Tips for Getting a Mortgage

I recently listened to a webcast on mortgages that had some tips that would be good for everyone.  So let me share those here.

While sites like Credit Karma are good for keeping tabs on your credit score, the model and, therefore, the range that Credit Karma uses is different than the one the credit bureaus use.  They are using an older model – Vantage 2.  This will change over time.  But as it stands now, their range goes to 990 versus the 850 of the credit bureaus.  So the score will come out different.  While it will still give you a very good idea of where you are generally with your credit score, you need to know exactly when it comes time to get a mortgage.  Everyone is entitled to one pull of their credit report from the bureaus at no charge, without it affecting your credit.  That can be done at www.annualcreditreport.com.  You will be asked for your SSN but this is a secure site.

  1. Why is this so important?  Before there are specific scores that determine what interest rate you will get on your loan.  So if you are thinking of buying any time in the next year, pull your credit report and work on improving your score if needed.
    1. 580 – the lowest score you can have to get an FHA loan. (you’ll need to put more down for a loan at this score – 10-20%
    2. 620 – the lowest score you can have to get a conventional loan or an FHA loan with the minimum of 3.5% down. However, anything up to 640 is considered a fair score so you will likely pay a higher interest rate.
    3. 640-719 is considered good and will get you a good rate.  But likely about 1/2 point more than an excellent score would give you. 
    4. 720 and above are considered excellent. But most banks consider 740  the minimum to be considered excellent and to get prime rate.  The rates you see advertised by lenders are typically for prime rate.   You also have to put down at least 20% to get prime rate.  
  2. As part of this, make sure you are not the victim of identity theft.  It can take a very long time to correct damage to your credit from identity theft. Some things to do on this front:
    1. Opt out of getting credit card offers.  You’ll save some trees but, more important, you will be eliminating one of the top ways your identity is stolen.  Visit https://www.optoutprescreen.com/?rf=t to do this.  In the meantime, shred or burn these offers.
    2. It goes without saying, don’t fall for email messages that tell you your account has been compromised and you need to follow the link to reset your credentials.  Your bank or credit card company would not alert you of fraud through email.  They also would not ask for your SSN over the phone.  Neither would the IRS – that’s another scam for another post.  At most, they will ask for the last 4 digits of your SSN.  Never give anyone your SSN over the phone.  If you are in doubt, tell whomever calls you that them you will call them back. Then look up the official phone number and call that.  
    3. Share your SSN with as few people as humanly possible.  Sometimes the identity theft is someone in the victim’s family. 
    4. When you sign up for things online, don’t use the same password you use for your bank, credit card and other financial accounts.  Come up with a password for those things that has nothing to do with any of your other passwords.

Even if you are not buying a house, you may refinance in the future, so it would serve everyone to protect your credit and credit score.   

If you are looking to buy or sell, even if it is down the road, contact me.  It’s never too early to prepare.

Michelle J. Lane
MICHELLE J. LANE, Realtor
Century 21 Commonwealth
CELL: 617 584-3904